2021 Trade Update: Uncertain Global Scenarios Bear Watching

With the United States-Mexico-Canada Agreement (USMCA) finally resolved in North America, the vast majority of hemispheric trade will continue duty free. Indeed, much of the new agreement has been to standardize and modernize customs procedures throughout our continent to facilitate the free flow of goods.

But now U.S. shippers will be closely tracking ongoing regulatory issues with China and Southeast Asia, as well as the looming showdown between the United Kingdom and the European Union over Brexit.

Essa Al-Saleh, CEO and president of Agility Global Integrated Logistics, is one of many industry leaders coming to grips with the current state of uncertainty. “Producers, shippers, forwarders and carriers find it impossible to plan, forecast and make decisions in an ever-shifting climate of tit-for-tat tariffs and volatile fuel prices, not to mention new protectionist measures, sanctions and compliance rules taking place at this time,” he says.

However, Al-Saleh notes in a welcome development that the U.S.-China trade battle has cooled with the signing of an agreement that puts off additional tariffs…at least for now. “At the same time, manufacturing has shown recent signs of stabilizing and picking up in the Philippines, Thailand, Malaysia, India and China,” he adds.

According to Panjiva, a global trade intelligence firm, the Trump administration is also close to beginning a section 301 trade review of Vietnam’s currency practices. “This is the same type of investigation used against China and has been reported at various times for more than a year,” says Chris Rogers, research director for the firm. “While the Treasury Department has not declared Vietnam to be a currency manipulator, President Trump has previously done so unilaterally with China. The case is unlikely to be completed before the end of 2020.”

The U.S. trade-in-goods deficit with Vietnam, a major motivator of administration policy, has surged to $58.3 billion over the past year from $32.3 billion as manufacturers have moved to Vietnam from China. The biggest dollar contributors have been a 26.6% compound annual growth in mobile phone and network device shipments, a 54.2% increase in solar panels, and a 21.7% rise in furniture shipments.

Panjiva’s outlook for European supply chains in the wake of COVID-19 and ahead of the U.S. elections and Brexit, also contains implications for U.S. logistics managers. “EU trade has underperformed the global average with an 11.3% drop in exports in July being driven by lower shipments to the U.K. and U.S.,” researchers note.

“Future trade relations with the U.S. will vary greatly depending on the outcome of the U.S. elections,” says Rogers. “A Trump win may mean more tariffs due to digital services taxes and carbon border duties, while a Biden administration could lead to a wide-ranging trade deal, but not immediately. WTO reform is possible under either U.S. election outcome, but is a long way off.”

An EU-U.K. trade deal is unlikely to be reached before the end of the year, with serious consequences for supply chains, Rogers and the Panjiva team add. The EU-Mercosur states (Argentina, Brazil Paraguay and Uruguay) trade deal is likely to fail to reach ratification due to French concerns over Brazilian environmental policy, making for a lost opportunity for the autos sector.

Meanwhile, MIT professor Yossi Sheffi notes that the relationship between Great Britain and the EU continues to deteriorate. “Forget the pending tariff disruptions for a moment,” he says, “and consider what’s happening now with border inspections. Trucks are in mile-long gridlocks for inspections, and there’s no relief in sight. This is a Black Swan event waiting to happen.”

Tariffs Still Hurt

For Beth Pride, president of BPE Global, an international trade and logistics company, USMCA merely represents “NAFTA 2.0,” which she opines was pushed through by the Trump Administration as a symbolic achievement.

“Although the agreement wasn’t substantially different from NAFTA, it was a significant challenge for the trade community to implement new processes, procedures and make systematic changes in less than 60 days, with the final instructions being published less than 24 hours prior to the trade agreement going into effect,” says Pride.

Pride also observes that the biggest issue that companies faced was that the tariff schedule with the new Rules of Origin wasn’t published until the very last moment. “This resulted in quite a scramble for importers, exporters and software developers,” she says. “Because USMCA is so similar to NAFTA, companies were to get USMCA certifications and make the necessary changes to their operations relatively quickly. As of this writing, the program is functioning and companies are able to take advantage of this free trade agreement.”

At the same time, says Pride, global trade practitioners have been developing Brexit strategies as early as 2015. “It’s impossible to make perfect plans without the regulations to base your plans on,” she says. “I feel confident that most companies have done their best to prepare, but we’ll see what happens as the actual rules are developed and implemented.”

Above and beyond USMCA and Brexit, the biggest challenge for importers and exporters by far are the Section tariffs and retaliatory tariffs that are being placed on American goods, Pride concludes. “The tariffs continue to hurt American companieras and consumers, and there’s very little likelihood that they’ll go away if Trump is reelected,” she says. “American companies desperately need relief, and removing the tariffs would be a huge salve to companies struggling during the pandemic and this economic crisis.”

“Green” Issues

Even as supply chain managers make changes to respond to business challenges posed by the pandemic, executives and compliance team leaders must protect their company and employees by continuing to deal with critical U.S. international trade laws and regulations—including those addressing the environment

According to Alan Wolff, Deputy Director-General of the World Trade Organization (WTO), “green” issues are woven into the history of the multilateral trading system.

“But the role of trade and the WTO on the environment is complex, and as a result, it is not always well understood,” he says. “One big reason is the COVID-19 pandemic, which has pushed environmental issues up the local, national, regional and global policy agendas. The current crisis calls for a collective response on trade that fosters sustainability, inclusiveness and resilience.”

He advises U.S. logistics managers to acquaint themselves with the complex legal questions that have arisen in some environment-related WTO cases into a few key considerations:

• In environment-related WTO cases, the environmental goal was never the issue. Instead, the disputes focused on the protectionist and arbitrary aspects of the measure. Those protectionist aspects may in fact have worked against the goals of the measure in question by preventing trade from playing its full role in promoting the most efficient solution to a given environmental challenge.
• In line with this, WTO cases have shown that WTO members have the freedom to differentiate between polluting and greener products. There is one caveat: in doing so, they must avoid unjustifiable or arbitrary discrimination.

To correct serious misperceptions about the implications of WTO rules for environmental action, the organization has recently published a booklet entitled “Short Answers to Big Questions on the WTO and the Environment” which explores trade’s impact on the planet and the policies that governments enact to protect it.

“Calls for ambitious action to safeguard our environment – especially from young people –  are growing louder by the day,” says Wolff. “At the same time, the pandemic has put huge additional strains on the global trading system and our economies.”

Wolff tells his constituents to continue tracking how trade tensions are on the rise and how continued escalation risks making a major economic impact.

“How we respond will be crucial because a strong and effective global trading system needs to be a key part of the global response to the pandemic and efforts to build back greener and better,” he concludes.

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