TradeMoves presents our new bi-monthly blog series This Time in Trade where we look at current events over the previous two months to present the key developments in trade policy that are impacting our clients and US exporters more generally.
This first edition covers the major policy developments that transpired from October through the first week in December. It has been a very busy couple of months in trade policy. We examine the latest developments in the US-China trade war, the opening of a new exclusion process for US Section 301 List 4A tariffs on imports from China, the ratification process of the United States-Mexico-Canada Agreement (USMCA), the escalating Transatlantic trade fight between the United States and the European Union (EU), and the US-Japan trade deal.
US-China Trade War
There has been mostly good news for a change on the US-China trade war front over the past two months. After escalation in September with the implementation of US List 4A tariffs and Chinese retaliatory List 4A tariffs, all signs have pointed to positive developments in the US-China trade talks. Earlier in October, President Trump announced the suspension of a 5% increase of all US Section 301 tariffs. President Trump then announced that the US and China had reached a preliminary phase one trade deal. Reports indicate this initial deal will cover Chinese agricultural purchases and some US tariff relief, although the scope of tariffs to be eliminated as part of the deal remains unclear. After some dispute over the terms of the agreement, a deal has not been yet been officially signed, although just this week US Administration officials have said that the two sides are very close to finalizing the deal. Some analysts feared that President Trump’s decision to sign a bill in support of protesters in Hong Kong might derail trade negotiations, but Chinese officials have said that, despite the controversial bill, they are confident that the trade deal will be reached soon.
US Section 301 List 4A Exclusion Process
As of 31 October, USTR has opened an exclusion process for imported goods from China found on US Section 301 List 4A and subject to 15% tariffs as of 1 September. See the TradeMoves blog on the exclusion process for more details. The portal for exclusion requests will remain open until 31 January 2020. Although getting an exclusion request granted is likely to be difficult, US companies importing from China should take advantage of this opportunity for potential tariff relief. If you need assistance filing your exclusion request(s), don’t hesitate to contact TradeMoves. We have developed a handy guide to compile important information and can actually submit the requests on a company’s behalf.
All eyes are on Speaker Nancy Pelosi and the US House of Representatives to begin the US Congressional ratification process of the USMCA, President Trump’s replacement for the 25-year-old NAFTA. The President and many lawmakers on Capitol Hill are hoping that Congress will issue its stamp of approval before the end of the year to allow the agreement to come into force in 2020. After months of negotiations between House Democrats and USTR on fixes to enforcement of labor and environmental provisions in the deal, USTR late last month submitted agreed proposals to the governments of Canada and Mexico. Canada and Mexico must approve the adjustments before Speaker Pelosi will bring the USMCA to a vote on the House floor. The window for passing the trade deal in Congress before 2019 ends is very narrow, and it remains to be seen whether Congress will ratify the agreement before their holiday recess at the end of December.
Transatlantic Trade Dispute
At the beginning of October, the WTO gave the US the go-ahead to impose retaliatory tariffs on $7.5 billion of imports from the EU as a longstanding dispute between the EU and the US over illegal EU subsidies to Airbus came to a close. Shortly thereafter, USTR released its list for targeted retaliation, which includes 10% tariffs on aircrafts and 25% tariffs on select agricultural goods. The tariffs went into effect on 18 October. After a WTO compliance panel ruled earlier this month that the EU had not yet complied with their ruling, USTR announced that it was reviewing whether to impose additional duties as high as 100% on the current list of products and potentially adding new products to the targeted list. USTR is seeking comments by 13 January 2020 on whether products should be removed, tariff rates adjusted, or products should be added to the retaliatory tariff list. A conclusion to a similar WTO dispute over US subsidies to Airbus rival Boeing, which could see EU retaliatory tariffs imposed on imports from the US, is expected to be announced in the Spring of 2020.
Adding to the brewing Transatlantic trade storm, USTR proposed earlier this month to apply tariffs as high as 100% on $2.4 billion of products from France (cheese, wine, handbags, etc.) as part of a Section 301 investigation into a new digital services tax imposed by France that was deemed to disproportionately target US technology companies. In response, the EU has said that it will stand in solidarity with France and impose retaliatory duties on US products should the US go ahead with its proposed tariffs.
US-Japan Trade Deal
USTR has released the text of a phase one trade deal focused on agricultural market access and digital trade between the US and Japan. Japan has officially ratified the agreement, allowing it to come into effect on 1 January 2020. The deal does allow for preferential tariff access for some US agriculture in line with preferences granted to members of the Comprehensive and Progress Trans-Pacific Partnership (CPTPP). However, some sectors are still partially left out of this phase one agreement. It is also notable that the high-value traded goods that make up the bulk of the US-Japan trade relationship, especially autos, are left out of the agreement. This phase one deal is part of wider US-Japan trade negotiations which are expected to progress in phases. US exporters that are left out of this agreement or wish to see improvements in later phases should make USTR aware of their concerns.
As we race toward the end of the year, a lot remains uncertain on the US-China trade war and the USMCA. US exporters should keep a close eye on developments in US-China trade talks, and we hope that a phase one deal with some tariff relief for US importers and exporters alike is finalized soon. US exporters should also keep their ear to the ground on USMCA. We are likely to see movement in Congress in the next couple of weeks, and we ask that Congress move swiftly to ratify the USMCA as a nice holiday gift for US exporters before the new year.