Welcome to Weise Wednesday! Twice a month we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. If you have questions, we encourage you to send them to This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Q. What are the prospects for resolving outstanding trade conflicts between the United States and its global trading partners in 2019?

A. Over the past year, I addressed U.S. initiatives that have put a strain on our relationships with many of our trading partners. U.S. initiatives included section 232 actions to impose significant additional tariffs on imported steel and aluminum from around world and a section 301 action alleging intellectual property violations by China, resulting in punitive additional U.S. tariffs on a wide range of Chinese products exported to the U.S. and retaliatory Chinese tariffs on U.S. goods exported to China.

I also discussed the U.S. demand that Canada and Mexico agree to renegotiate the terms of the North American Free Trade Agreement (NAFTA). Although there have been some positive recent developments on several fronts, it is still way too early to predict how these issues will be resolved. 

 

Steel and aluminum tariffs

Regarding the U.S. imposition of tariffs on steel and aluminum imports from many countries, virtually every country impacted by the tariffs has imposed retaliatory tariffs on U.S. exports and filed complaints at the World Trade Organization (WTO). 

There is nothing new to report here. While bilateral discussions between the U.S. and impacted countries are said to be continuing, little progress appears to have been made to resolve the underlying issues. Further, the cumbersome dispute settlement process at the WTO is in the very early stages of addressing these issues, and no decisions are expected in the near term.

 

NAFTA renegotiations

As previously discussed, an agreement was reached between the U.S., Mexico, and Canada on October 1, 2018, to replace NAFTA with a new but similar agreement called the U.S.-Mexico-Canada Agreement (USMCA). The agreement was signed by the leaders of the three countries on November 30 and must be approved by the legislature in all three countries before coming into effect. 

There have been some rumblings in the U.S. that it is not certain that the U.S. Congress, with Democrats now in charge of the House of Representatives, will approve the new deal. Perhaps to put more pressure on the Congress to approve it, President Trump recently threatened to terminate NAFTA very soon and before the Congress completes the approval process. If the President follows through on his threat, more uncertainty would be created for companies moving goods across borders in North America until the ratification process is complete in all three countries.

 

China trade relations

The trade relationship between the U.S. and China continued to deteriorate through 2018, with several rounds of retaliation and counter-retaliation imposing significant additional tariffs on a wide range of each other’s products. In September, President Trump announced that he would be imposing an additional 10% tariff on about $200 billion of Chinese imports, effective September 24, and that the additional tariff on those goods would be increased to 25% on January 1. In the announcement, the President also threatened to impose tariffs on $267 billion of additional Chinese imports if China retaliated. 

As expected, China immediately announced it was imposing additional tariffs of up to 10% on $60 billion of U.S. imports. This is in addition to the 25% tariff both parties had imposed on roughly $50 billion of each other’s goods earlier in 2018. 

The U.S. had hoped that these additional tariffs would lead to bilateral negotiations to resolve the underlying U.S. complaints in the 301 action about numerous unfair trade policies and practices relating to U.S. technology and intellectual property rights. Unfortunately, no serious bilateral negotiations resulted, as both parties appeared to dig in for a long fight.

The good news is that a major breakthrough was made at a dinner meeting in late November between President Trump and Chinese President Xi Jinping while both were in Buenos Aires for the Group 20 Summit. Under an agreement reached between the two parties, President Trump agreed to postpone for 90 days the planned January 1 tariff increase on Chinese products in return for a Chinese commitment to purchase a significant amount of U.S. farm, energy. and industrial goods. The parties also agreed to immediately begin talks on Chinese industrial policies, including coercive licensing of U.S. technology, trade secret theft. and non-tariff barriers.

This week a U.S. delegation, led by Deputy U.S. Trade Representative Jeffrey Gerrish, is in Beijing for two days of negotiations in an effort to resolve the underlying issues that resulted in the U.S. complaint. If the talks go well, China is expected to send its Trade Minister to Washington in the coming weeks to meet with U.S. Trade Representative Robert Lighthizer in an effort to reach an agreement.

There is no guarantee that these talks will be successful, but it is the first glimmer of hope that the parties are committed to working to resolve the issues. If the talks break down, President Trump has vowed to implement the scheduled additional tariff increases after 90 days. Meanwhile, global traders should stay tuned and stay engaged and hope for the best.