Tag: international trade

Carbon and Alloy Steel Plate Anti-Dumping Duties Finalized, Japan and France Hardest Hit

Carbon and Alloy Steel Plate Anti-Dumping Duties Finalized, Japan and France Hardest Hit

The Department of Commerce today announced its affirmative final determinations that steel producers in Austria, Belgium, France, Germany, Italy, Japan, the Republic of Korea (South Korea), and Taiwan are dumping imports of carbon and alloy steel plate in the U.S.
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Margins in the dumping investigations ranged from 3.62% to 148.02%, and were, in certain instances, based on adverse findings against non-cooperative responding parties. Commerce also determined that critical circumstances exist in three investigations, allowing for collection of duties for a retroactive period of 90 days before the preliminary determination, spanning back to August 16. Commerce also found that South Korea is providing unfair subsidies to its producers of steel plate at a countervailable duty rate of 4.31%. As a result of these final affirmative determinations, Commerce will instruct Customs and Border Protection to collect cash deposits based on these final rates.
“A healthy steel industry is critical to our economy and manufacturing base, yet our steel industry today is under assault from foreign producers that dump and subsidize their exports,” Secretary of Commerce Wilbur Ross said in a press release about the new anti-dumping and countervailing duties. “After a thorough investigation, the Department of Commerce has found that exporters of steel plate have received government subsidies and sold at unfairly low prices in the United States. The Trump administration is unequivocally committed to the vigorous enforcement of America’s trade laws, including the finding of critical circumstances and the retroactive collection of duties when appropriate. We will ensure U.S. businesses and workers are treated fairly.”
The International Trade Commission is scheduled to make its final injury determinations on or about May 15.

Austrian Producers Hit With Nearly 54% Duties

In the Austria investigation, Commerce found that dumping has occurred by the sole mandatory respondent Bohler Edelstahl GmbH & Co KG, Bohler Bleche GmbH & Co KG, Bohler International GmbH, Voestalpine Grobblech GmbH, and Voestalpine Steel Service Center GmbH (collectively, Voestalpine) at a dumping margin of 53.72%. Commerce calculated a dumping margin of 53.72% for all other producers/exporters in Austria.

Duties for Belgian Plate Producers

In the Belgium investigation, Commerce found that dumping has occurred by mandatory respondent Industeel Belgium S.A. at a final dumping margin of 5.40%. Additionally, Commerce
established a dumping margin of 51.78%, based on adverse facts available, for mandatory
respondent NLMK Clabecq S.A., NLMK Plate Sales S.A., NLMK Sales Europe S.A., NLMK
Manage Steel Center S.A., and NLMK La Louviere S.A. (collectively, NLMK Belgium). Commerce calculated a dumping margin of 5.40% for all other producers/exporters in Belgium.

Nearly 150% Duties for France’s Dillinger SA

In the France investigation, Commerce found that dumping has occurred by mandatory respondent
Dillinger France S.A.at a final dumping margin of 8.62%. Additionally, Commerce established a dumping margin of 148.02%, based on adverse facts available, for mandatory respondent Industeel France S.A. Commerce calculated a dumping margin of 8.62% for all other producers/exporters in France.

Germany Investigation

In the Germany investigation, Commerce found that dumping has occurred by mandatory respondent AG der Dillinger Hüttenwerke at a final dumping margin of 5.38%, and dumping occurred by respondent Ilsenburger Grobblech GmbH, Salzgitter Mannesmann Grobblech GmbH, Salzgitter Flachstahl GmbH, and Salzgitter Mannesmann International GmbH (collectively, Salzgitter) at a final dumping margin of 22.90%.
Commerce calculated a dumping margin of 21.03% for all other producers/exporters in Germany.

Italy Investigation

In the Italy investigation, Commerce found that dumping occurred by mandatory respondent
Officine Tecnosiders.r.l. at a final dumping margin of 6.08%. Additionally, commerce established a dumping margin of 22.19%, based on adverse facts available, for mandatory respondents Marcegaglia SpA and NLMK Verona SpA. Commerce calculated a dumping margin of 6.08% for all other producers/exporters in Italy.

Japan Investigation

In the Japan investigation, Commerce found that dumping has occurred by mandatory respondent Tokyo Steel Manufacturing Co., Ltd., at a dumping margin of 14.79%. Additionally, commerce established a dumping margin of 48.67%, based on adverse facts available, for mandatory respondents JFE Steel Corporation and Shimabun Corporation. Commerce calculated a
dumping margin of 14.79% for all other producers/exporters in Japan.

Republic of Korea Investigation

In the Korea anti-dumping investigation, commerce found that dumping has occurred by mandatory
respondent POSCO (formerly the Pohang Iron & Steel Corp.) at a dumping margin of 7.39%. Commerce calculated a dumping margin of 7.39% for all other producers/exporters in South Korea.
In accordance with the scope of the investigation, the application of POSCO’s margin to all-
other producers/exporters applies only to subject CTL plate not within the description of cut-to-length carbon quality steel plate in the 1999 South Korea anti-dumping order.
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In the South Korea countervailing duties investigation, commerce calculated a subsidy rate
of 4.31%for POSCO and a subsidy rate of 4.31% for all other producers/exporters in the Republic of Korea.
The countervailing duties margin’s application is also subject CTL plate not within the 1999 order of the same.

Taiwan Investigation

In the Taiwan investigation, commerce found that dumping has occurred by mandatory respondents
Shang Chen Steel Co., Ltd. and China Steel Corp. at dumping margins of 3.62% and
6.95%, respectively. Commerce calculated a dumping margin of 5.29% for all other
producers/exporters in Taiwan.
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Critical circumstances were alleged with respect to imports of CTL plate from Austria, Belgium,
Italy, the Republic of Korea, and Taiwan.
The petitioners are ArcelorMittal USA LLC in Illinois, Nucor Corporation in North Carolina and SSAB Enterprises in Ill.

Former International Trade Commission Vice Chairman Dean Pinkert Talks Steel Overcapacity

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.
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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.
[caption id="attachment_84022" align="alignleft" width="180"]Dean Pinkert Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.[/caption]
Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is part one of our discussion.
Jeff Yoders: Do you feel that the current tools being used to regulate trade are effective in dealing with global steel overcapacity? And global overcapacity for other metals?
Dean Pinkert: If you go back a year now, to the G20 decision to look at the overcapacity situation regarding steel, there has been a lot discussion, and there will be more, but, eventually, they will be able to figure out a way to proceed with a plan to reduce worldwide overcapacity. I just saw today that some of the aluminum interests around the world are looking to initiate that same type of process with regard to aluminum production.
That tells you that there’s a sense that there is progress being made on the steel side and the aluminum producers feel that they’re in a similar worldwide overcapacity issue and they want to see if that G20 process, intended to get the amount of product produced worldwide, down could be successful.
JY: A lot of these overproduction issues have to do with non-market economies and how difficult it is to compare what is a fair price in a market such as China’s or Vietnam’s and what is charged and what it costs to produce these materials in a market economy? Is that a major problem that’s causing overproduction to continue?
DP: It’s very difficult in non-market economies to determine whether or not the pricing is being determined by the government or in some other hybrid kind of way. If you look at the Department of Commerce‘s non-market economy methodology, they determine a cost of production in, let’s say China, but it’s not based on Chinese pricing. It’s based on pricing in a comparable market economy. That’s the methodology they use. The ITC is not involved in that, but the reason why there is that methodology is because of how difficult it really is to figure out how pricing is determined in these native non-market economies. Prices in those economies could be dictated by the government or, honestly, any number of other institutions.
Starting in 2007, though, Commerce made it possible for there to be countervailing duties in a non-market economy case and not just anti-dumping. Anti-dumping has to do with the prices that the foreign company is charging in the U.S, whether they’re lower elsewhere and whether they’re below the cost of production, there is whole set of issues surrounding them but they are based on what the cost is once they are exported here. In countervailing duties, it’s whether there are subsidies provided by a government and that can be before production, during production or after production.
Before 2007 commerce couldn’t find countervailable subsidies against non-market economies shipping products here because it was too difficult to find out what a subsidy is in them. Commerce changed that in 2007 and there’s been some real movement in that area. Some countervailing duties on steel products have pushed overall duties above 200%. As a result, there has been effective enforcement.
JY: Do you feel other tools need to be used in the modern, global economy? It’s been a long time since section 201 or Section 301 have been invoked….
DP: In 2001 the Bush administration asked for a global steel safeguard. They initiated that on June 5, 2001. That was put in place and lasted for 18 months. After 18 months, the Bush administration said they had been successful in helping the industry recover, maybe not taming global steel overcapacity, but bringing the industry back.
JY: It’s been awhile, though, you know, since 2001…
DP: Well, the safeguard approach could very well be dusted off by this new administration. We’ll see if it’s used, where it’s used and how it’s used. I don’t want to jump out and say it should be used for this product or that other product, but what I will say is where there is global overcapacity and global overproduction. No one disputes that.
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Folks in the industry should look to see whether they wish to avail themselves of the section 201 safeguard because that could be a worthwhile approach. I do admit that global safeguards have faced some rough sledding at the WTO in recent years and that includes the steel safeguard that the Bush administration put in place. They attempted to defend it at the WTO and were not successful. That may have been one of the reasons that they chose to withdraw it after 18 months, it wasn’t stated as one at the time, but it could have had something to do with it.
Today, though, there could be industries where the safeguard approach might be useful, but you have to be mindful of what might happen at the WTO level.

209% Anti-Dumping Duties for Steel Rebar From Japan; Turkey and Taiwan Tariffed, Too

209% Anti-Dumping Duties for Steel Rebar From Japan; Turkey and Taiwan Tariffed, Too

The Department of Commerce announced placed preliminary anti-dumping duties on imports of steel concrete reinforcing bar (rebar) from Japan, Taiwan, and Turkey yesterday.
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“Dumping” is determined to occur when a foreign company sells a product in the U.S. at less than its fair value.

Japan Hit Hardest

In the Japan investigation, mandatory respondents Jonan Steel Corporation and Kyoei Steel Ltd. both received preliminary dumping margins of 209.46%. Commerce assigned the preliminary margin of 209.46% to all other producers/exporters of steel concrete rebar from Japan.
In the Taiwan investigation, mandatory respondents Power Steel Co., Ltd. and Lo-Toun Steel and Iron Works Co., Ltd. received preliminary dumping margins of 3.48% and 29.47%, respectively. Commerce assigned the preliminary margin of 5.49% to all other producers/exporters of steel concrete reinforcing bar from Taiwan. As a country, Taiwan got off relatively easy in this dumping case, considering the margins we just saw for Japan.
[caption id="attachment_74881" align="aligncenter" width="550"]Rebar foundation pour in Wrigley Field parking lot. With rebar a coveted product for large construction projects, it was only a matter of time until dumping was investigated. Source: Jeff Yoders/MetalMiner.[/caption]
In the Turkey investigation, mandatory respondents Habas Sinai ve Tibbi Gazlar Istihsal Endustrisi A.S. and Icdas Celik Enerji Tersane ve Ulasim Sanayi A.S. received preliminary dumping margins of 5.29% and 7.07%, respectively. Commerce assigned the preliminary margin of 6.20% to all other producers/exporters of steel concrete reinforcing bar from Turkey.

Tariffs for Turkey and Taiwan

This dumping investigation is a separate one from the Turkish rebar countervailing duties investigation we wrote about last week. Countervailing duties are for government-subsidized products, “injurious dumping” is importing and “dumping” products regardless of cost of production. Got that? Good.
Rebar is now a traded steel product on several international exchanges so it was only a matter of time before dumping of it became a hot-button issue for governments with strong infrastructure markets. In 2015, imports of steel concrete rebar from Japan, Taiwan, and Turkey, were valued at an estimated $108.69 million, $17.57 million, and $674.40 million, respectively.
Commerce will instruct U.S. Customs and Border Protection to collect cash deposits based on these preliminary rates. The petitioners for this investigation are the Rebar Trade Action Coalition and its individual members: Byer Steel Group, Inc. of Ohio, Commercial Metals Company in Texas, Gerdau Ameristeel U.S. Inc. down in Florida, Nucor Corporation in Charlotte, N.C., and Steel Dynamics, Inc. of Indiana.
As mentioned above, the merchandise subject to these investigations is steel concrete rebar imported in either straight length or coil form regardless of metallurgy, length, diameter, or grade or lack thereof. Subject merchandise includes deformed steel wire with bar markings (e.g., mill mark, size, or grade) and which has been subjected to an elongation test.
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The subject merchandise includes rebar that has been further processed in the subject country or a third country, including but not limited to cutting, grinding, galvanizing, painting, coating, or any other processing that would not otherwise remove the merchandise from the scope of the investigations if performed in the country of manufacture of the rebar.
Commerce is scheduled to announce its final determinations on or about May 16, 2017, for Japan and Turkey, and July 6, 2017, for Taiwan.

Trump Administration to Emphasize US Law Over WTO

The Trump administration is developing a national trade policy that would seek to diminish the influence of the World Trade Organization in the U.S. and champion American law as a way to take on trading partners it blames for unfair practices, according to a draft document reviewed by The Wall Street Journal.
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In his speech to a joint session of Congress Tuesday night, Trump said he wouldn’t let American workers and businesses be taken advantage of. “I believe strongly in free trade but it also has to be fair trade,” he said.
[caption id="attachment_81621" align="aligncenter" width="550"] The Trump administration’s trade policy is forming. Source: Adobe Stock/Argus.[/caption]
Some business groups and republicans who back traditional trade policy have hoped the new administration would moderate its most aggressive policy proposals to protect U.S. industries.

Departure From Previous Trade Policy

However, the policy contained in a draft document due to be published any day now, represents a dramatic departure from the Obama administration, which emphasized international economic rules and the authority of the Geneva-based WTO, an international body that regulates trade and resolves disputes among its members. Armed with what it sees as a broad mandate, the administration is moving forward with rules that would favor U.S. law over the conflict resolution mechanisms of the WTO.
“The American people grew frustrated with our prior trade policy not because they have ceased to believe in free trade and open markets, but because they rejected the way in which the framework of rules governing international trade operates,” the document says.
Congress requires the president to submit the administration’s trade policy annually by March 1, according to U.S. law. The framework is a signal to lawmakers, businesses and trading partners about how the administration plans to carry out its policies. Several business leaders and congressional aides were briefed on the trade-policy blueprint and are aware of the draft document’s contents.
In the face of Republican concerns, a congressional aide said language in the draft challenging the WTO could still be toned down in a final, public version.
The policy mainly spells out a broad approach to dealing with trading partners — including China, South Korea and Mexico, where the U.S. has trade deficits — and the global trading system as a whole, via the WTO.

MES and Aluminum Case

The outcome of two important test cases at the WTO could help determine the Trump administration’s attitude toward the international trading system, trade lawyers say.
The first is a challenge China brought when the U.S. did not grant the country “market economy” status in December on the 15th anniversary of the country’s membership in the WTO and when China did not meet milestones set by the organization to achieve a market-based economy. We explored the issue in depth last year in our China vs. the World interactive package.
By not granting Beijing that status, the U.S. can continue calculating anti-dumping and countervailing duties on Chinese goods.
The second is a case the Obama administration brought that challenges China’s subsidies for aluminum production. A ruling for China in that case could lead the Trump administration to look for other measures to challenge Chinese subsidies.
“Americans are subject only to U.S. law not to WTO decisions,” the draft document reads. “The Trump administration will aggressively defend American sovereignty over matters of trade policy.”
The draft document also outlines a legal argument for rejecting WTO dispute-settlement decisions. Some economists and lawmakers fear that failure of the U.S. to abide by WTO decisions and rules or unilateral action by the U.S. not compliant with international law will trigger retaliation by other countries. The risk is that such an approach, if copied by other countries, could weaken adherence to the WTO’s rule-based system around the globe and upend seven decades of increasing U.S.-led cooperation on trade since World War II.
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There is certainly a case to be made that WTO rules are not adequately written to deal with modern trade when it comes to producer-nations using third countries to circumvent duties. Or particularly with mainly non-market-based economies whose governments can manipulate currency to encourage export-based growth, but the administration needs to tread carefully and not undo the progress that has been made in rules-based trading over those seven decades. What happens next could undo a system that, for all its faults, attempts to use rules to normalize trade between nations and economies as different as, well, China and the U.S.

Trump Administration Considers New Way to Calculate Trade Deficits

Trump Administration Considers New Way to Calculate Trade Deficits

President Donald Trump’s administration is mulling changes to how the U.S. calculates trade deficits. A change could be made that would show more movements of goods between free trade agreement countries, the Wall Street Journal reported recently citing people involved in the discussions.
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The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged, the sources told The Wall Street Journal. These would not be traditional transshipments, generally done to disguise a country of origin, but rather shipments that are manifested to include the country of origin but simply move goods through a trade agreement country.
Economists say that approach would cause trade deficit numbers to go up because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.
Trump has been highly critical of trade deals including the North American Free Trade Agreement (NAFTA) with Mexico and Canada. By using a metric that widens the trade deficit, it could give him political leverage to make sweeping changes, the newspaper reported.
If the government adopted the new method, the deficit with Mexico would be nearly twice as high.
The effect of such a change would be particularly stark on data involving countries that have free trade deals with the U.S., this person said—and in some cases the new methodology could even change a trade surplus into a trade deficit.
Trump trade officials said the idea is part of an early discussion and that they are examining various options. It is unclear whether the administration would adopt any new approach for measuring trade as part of official government data, or just use the higher deficit calculation to make the case for new trade deals.
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“We’re not even close to a decision on that yet,” Payne Griffin, the deputy chief of staff at the office of the U.S. Trade Representative told the Journal. “We had a meeting with the Commerce Department, and we said, ‘Would it be possible to collect those other statistics?’”
The Journal reported that career government employees at the USTR’s office complied with the request to prepare data using the new methodology but also noted their objections.

Army Corps Will Approve Dakota Access, Trump Trade Advisor Puts Germany on Notice

Army Corps Will Approve Dakota Access, Trump Trade Advisor Puts Germany on Notice

North Dakota Senator John Hoeven (R.) said the U.S. Army Corps of Engineers is ready to provide the easement necessary to build the final leg of the $3.8 billion Dakota Access oil pipeline under North Dakota’s Lake Oahe.
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Hoeven said he spoke with acting Secretary of the Army Robert Speer and Vice President Mike Pence Tuesday.
The Army Corps issued a statement Wednesday saying it had initiated the steps outlined in President Donald Trump’s directive to complete the 1,172-mile crude oil pipeline but that no permit has been granted. A decision will be made “once a full review and analysis is completed” in accordance with the directive, Malcolm Frost, a spokesman, said in the statement.
U.S. Representative Kevin Cramer, a Republican from North Dakota, also said that the Army Corps had notified Congress of its plan to grant the easement. A spokesman for the Standing Rock Sioux tribe and others that have fought against its construction, said Tuesday that it will challenge any suspension of the federal environmental review that previously held up the pipeline. However, the Tribe lost a previous challenge in federal court when a judge approved the final eight miles of the route, noting that the proposed route does not go through tribal lands.

Navarro: Germany Takes Advantage of Undervalued Euro

Peter Navarro, the head of President Trump’s new National Trade Council, recently gave an interview to the Financial Times. The economist told the FT that Germany is using a “grossly undervalued” euro to “exploit” the U.S. The euro has weakened against the dollar over the past two years.
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He also told the FT that one of the administration’s trade priorities is unwinding and repatriating the international supply chains on which many U.S. multinational companies rely, “It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

Evolving Trade Policy is Much More Than a Mexican Standoff

Evolving Trade Policy is Much More Than a Mexican Standoff

On the campaign trail, Donald Trump’s supporters seemed to be of two positions when it came to trade policy: there were those that took every word and fervently believed the candidate when he said Buy American would Make America Great Again… and then there were those among the supporters who saw the risk of taking that policy too far, but still felt comfortable in the belief that come the day the candidate reached the Oval Office a more conciliatory, if still robustly pro-U.S., line would be pursued.
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Well, if further clarification was needed it was made clear in the new president’s inauguration pledge to buy American and hire American, followed by one of his first executive orders to strike-out the Trans-Pacific Partnership after seven years of painstaking negotiation.
In itself, the pledge to buy American and hire American is admirable, commendable and logical. The risk comes when it is enforced by the application of arbitrarily applied tariff barriers. History is littered with examples of previous leaders who have sought to protect domestic jobs and industries by putting up tariff barriers. As recently as 2002, George W. Bush slapped tariffs on steel imports instigating a wave of World Trade Organization complaints and, a year late,r a ruling from the WTO that the steel tariffs were illegal.

Whither the WTO?

Eventually Bush backed down and order was restored, but only because all sides accepted the legitimacy of working within a rules-based system such as the WTO. As a recent article in the Telegraph observed, the international community built the current system after the devastation of World War II and the Great Depression precisely hoping the we could avoid the self-inflicted wounds resulting from tit-for-tat trade disputes.
The US was central in that process and helped craft the rules in its own image of fair and open terms of trade. The fact is that other countries don’t stand still if a trading partner arbitrarily applies a tariff, quota or import tax. The idea of rules-based system such as the WTO is that these disputes can be resolved within a framework that, however tortuous, is accepted by all parties as balanced, but we should take note of the new President’s statements. He generally means what he says.
So, when Trump vowed to “renegotiate” America’s relationship with the WTO if it tries to block his protectionist policies, adding “we’re going to renegotiate or we’re going to pull out,” (something he said last year), declaring “these trade deals are a disaster. The WTO is a disaster,” he is clearly signalling he has no intention of letting the internationally accepted WTO system get in the way of his ideas for putting up barriers to imports.

What Has NAFTA Brought the US?

The consequences of such action should not be underestimated. Over the last 20 years the creation of NAFTA and the consequences of lower transport costs and better communications has meant U.S. corporations large and small have become more integrated with suppliers overseas, both with their own operations and third parties.
[caption id="attachment_83036" align="alignnone" width="300"] Source: Telegraph Newspaper[/caption]
Many U.S. corporations are extensively integrated with the Mexican manufacturing sector and, therefore, exposed to any changes.
[caption id="attachment_83037" align="alignnone" width="300"] Source: Telegraph Newspaper[/caption]
A radical shakeup of the tariff system would have a profound impact on the price of just about every industrial and consumer good sold in the U.S. U.S. Foreign direct investment in China, for example, stands at $65.8 billion, whereas China’s in the U.S. is only $9.5 billion, meaning the U.S. is far more reliant on open access to China than the other way around. The Telegraph points out China could easily buy Airbus over Boeing. Or Brazilian soy over U.S. soy. Or put the squeeze on Apple’s supply chain in China. Sure, iPhones could, in time, be made wholly in the U.S.A. but consumers are going to have to pay a lot more for them.
If the intention is to boost domestic jobs by putting up barriers, then the risk is if companies like Apple move to reshore production they would seek to automate in order to avoid the higher U.S. labor cost. Automation is already a growing challenge to job creation in mature markets, forcing firms to relocate would also force the pace of automation.
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Tariff barriers are like using a hammer to crack a nut. However attractive the grand gesture of slapping up barriers may seem, a more subtle approach to encouraging firms to buy American and, where possible, to relocate production would be much more beneficial for the U.S. economy. President Trump’s other idea of re-writing the U.S. tax system would be a good place to start.

Trump Puts Final Nail in TPP’s Coffin, Will Anything Replace It?

Trump Puts Final Nail in TPP’s Coffin, Will Anything Replace It?

Well, President Donald Trump certainly hit the ground running this week.
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On his first day in the Oval office he signed 3 executive orders, the most significant of which is probably the one withdrawing the U.S. from the Trans-Pacific Partnership trade deal — TPP. The TPP is a giant free trade agreement forged by the Obama administration with the aim to cut taxes and develop trade with 11 other Pacific Rim nations from emerging markets to mature economies like Australia. Trump has been consistent throughout his campaign and since that TPP was bad for American jobs so his statement on signing the executive order as “a great thing to the American worker,” comes as no surprise.

What Does No Deal Mean for the US?

Critics have argued that backing out of TPP would reduce America’s strategic position in the Asia-Pacific region and leave the door open for China to take the lead as the champion of free-trade. According to Fox News, U.S. Sen. John McCain (R-Ariz.) called the withdrawal a “serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.”
He added that it would “create an opening for China to rewrite the economic rules of the road at the expense of American workers.” In reality, such fears are probably overblown and while the debate will rage as to the benefits and disadvantages of free-trade, few can seriously argue that unfettered access for low-wage emerging economies to high-wage mature economies like the U.S. has not and will not continue to mean the loss of U.S. jobs to lower-cost locations.
That President Trump fulfilled his campaign promise to withdraw the U.S. from TPP, therefore, comes as no surprise but what may be of more interest is what it tells us about the new administration’s attitude toward trade and International engagement.

The US and the World

The two are the same thing, of course. The U.S. could, and almost certainly will, take a broadly protectionist view on matters of trade, of which TPP is just the first example. Trump’s self-promoted skills as a dealmaker may yet play a part both in the nature of new trade deals and America’s dealings with the rest of the world. For example, while Trump has been dismissive of NATO and not unreasonably made it clear his dissatisfaction with the level of contribution some NATO members make to their own defense, it could yet be that this is part of his dealmaking approach.
We could arrive at a situation where the Europeans up their game, contribute a full 2% of GDP to their own defense, and in the process the U.S. and Europe rejuvenate NATO and make it a force to be reckoned with. We can but hope.
While the new administration clearly has workers’ jobs as a central tenet of its trade policy, it does not preclude the U.S. from concluding trade deals if it deems them in its best interests. There is speculation, fueled in part by Trump’s own team, that the forthcoming visit of Great Britain’s prime minister, Theresa May, at the end of this week could herald some form of U.S.-U.K. trade deal to take effect after Brexit. Trade deals between economies with similar wage costs are however very unlikely to result in job losses or the relocation of whole industries such has been the case between the U.S. and Europe to Southeast Asia.
What, if anything will replace TPP? Without access to the U.S. market the rationale for the agreement is less compelling. Critics of the new president’s decision say it will leave China to increase its influence in the region and, indeed, Bloomberg reports that China is making renewed efforts to promote the 16-nation Regional Comprehensive Economic Partnership (RCEP) which takes in Southeast Asian countries, plus Japan, South Korea, Australia, New Zealand and India.
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For me, though, the key issue is TPP gave access to the vast and wealthy net importing U.S. market. RCEP may facilitate free trade but the largest member is a vast and not so wealthy net exporting economy: China. Countries like Japan, Australia, South Korea, New Zealand, etc. may want to think twice about that. They could find they are opening their markets to China only to achieve little in return.

Trump on Trade: 2017 Won’t Be Boring For International Trade

Trump on Trade: 2017 Won’t Be Boring For International Trade

If there is one area in which 2017 is going to be a momentous year, it is in trade.
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The incoming Trump administration campaigned on and has, since winning the election, robustly promoted an anti-free trade platform saying the North American Free Trade Agreement is “the worst trade deal maybe ever signed anywhere,” bullying GM, Ford Motor Company and various other multinationals into rethinking strategic investments planned for Mexico and forcing them to be shelved or amended.
Trump also announced shortly after the election that his first action in office would be to reject the Trans-Pacific Partnership (TPP). The rhetoric is part of an America First policy that takes an aggressive stance against countries running trade surpluses with the U.S., particularly China, and seeks to encourage job repatriation, particularly of positions that might have been lost in the process of globalization. The Trump view eschews free trade deals, it would appear, almost as a matter of principal.

Free Trade? Or Fair Trade?

The team president-elect Trump is building around him has many ardent campaigners against globalization with a core triumvirate of: Robert Lighthizer, the man Trump picked for U.S. trade representative; Peter Navarro, an outspoken China hawk set to lead a new National Trade Council; and Wilbur Ross, the president-elect’s pick for commerce secretary.
Hopes last year that campaign rhetoric would be softened in office have been squashed as the team has come together so businesses with a global reach had better buckle down for a rough ride in 2017 as policies are developed and applied by the new administration.

Trans-Pacific Bucket of Nope

First up, TPP is dead in the water. It is possible, in the absence of any alternative, the region may adopt a China-sponsored Regional Comprehensive Economic Partnership (RCEP). It excludes the U.S. but includes Australia, New Zealand, Japan and 12 other Asian countries. Fears that it passes global trade leadership to China are overblown, but it certainly signals clearly that America is adopting a more inward-looking, less engaging, trade policy at least for the duration of the incoming administration. Many see America’s withdrawal from TPP as a backward step, more because it was a rules-based system with the rules written to an American standard that many would have welcomed, RCEP will not seek the same level of accountability and standards.

Do Canada, Mexico Want to Renegotiate?

Next up, could be renegotiation of NAFTA. The new president has already backtracked on suggestions NAFTA would be ripped up. As the New York Times observes, after two decades the NAFTA economies are too tightly braided together for that to happen without profound consequences for all parties.
Goods manufactured by companies operating in Mexico, the U.S. and Canada — whether speakers, cars or airplanes — cross the border multiple times during production. That’s a shared manufacturing process that, if destroyed, would mean shared job losses. Interestingly, Canada and Mexico have said they would be willing to discuss updating Nafta. All three countries have things they would like to change, but all attempts to negotiate those have failed in the past probably reflecting the things they would like to change are rarely the same things across all three countries.
But, possibly in recognition that the threat to withdraw from NAFTA would present a huge blow to the U.S. economy, Trump has switched to publicly bullying corporations via Twitter to change investment decisions and eventually corporate priorities toward investment and jobs.

Where Will New Jobs Come From?

Not that NAFTA has been great for Mexicans, but since 1994 it has resulted in billions of dollars of inward investment and contributed the most to Mexico’s rise in exports. Still, Mexican wages have stagnated for years and, like their counterparts in the north, jobs are being lost to automation.
U.S. concerns about job losses are not one-sided. Nearly 2 million Mexican jobs in agriculture have been lost since the treaty, which benefited highly subsidized industries in the U.S. such as corn production to the detriment of Mexican farmers. Ultimately, if NAFTA is to be rewritten it will need to be done with the agreement of all three countries and that will take a long time. In the short-term, Trump is probably right to think that public criticism of corporations is likely to be more effective in grabbing the headlines even if the sum total of jobs “saved” will only amount to a tiny fraction of those employed in U.S. manufacturing.

China Looms

The new administration’s relationship with China, though, will likely be even more strained. The adoption of Lighthizer as U.S. trade rep shows they intend to adopt a radically more aggressive stance and raises the prospects of challenges on many fronts but particularly China’s currency policy. Lighthizer believes China is a currency manipulator.
According to the Financial Times, though, while much of the discussion about Trump’s trade plans has focused on his threats to impose punitive tariffs, Republican lawmakers are already considering an alternative.
Under a radical overhaul of the U.S. corporate tax system proposed by Republican leaders in the House of Representatives, imports would be taxed while exports would not. The “border-adjusted” tax would come alongside a cut in the corporate tax rate to 20% intended to encourage more U.S. production of goods. It is not clear how this would pass scrutiny at the World Trade Organization but Trump has indicated an about face on U.S. policy regarding the WTO, a body the U.S. has long supported and helped develop its rules. Now, Trump has threatened to pull the U.S. out of the trade body and may simply ignore challenges if he were to adopt the House of Representatives’ plan.

Trump on Trade

Many would argue, and half the population voted, that something needs to be done about the U.S. balance of trade, basically that nation imports too much and exports too little. It’s not alone as a mature economy in this respect, of course, much of Europe is the same, but not all.
Germany, like China, runs massive, and for its trade partners, damaging trade surpluses. We tend to say with Germany that it structures its economy and indeed controls the E.U. as a region to facilitate this (for Germany, at least) happy state of affairs, whereas with China we say it manipulates its currency, interest rates and banking system to achieve the same thing. The outcome is pretty much the same, both countries enjoy a strong balance of trade surpluses regardless of the impact it has on their trade partners. Over the next four years, though, Beijing is likely to come in for more criticism than Berlin.
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For companies with overseas suppliers, customers or with a global element to their supply chain 2017 is likely to be a year like no other

Is the Euro Heading For Parity With the US Dollar? Many Think So

Is the Euro Heading For Parity With the US Dollar? Many Think So

It’s not the first time, but the United States of America and Europe seem to be heading in opposite directions.

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In this case, it’s their currencies that are going opposite directions. The U.S. dollar’s rise and the euro’s fall are being driven by policies and perceptions of what those policies mean for growth and prosperity next year. The big questions for firms with business interests in both camps is does this mean we could see parity between the dollar and euro next year?

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The euro was last at parity with the dollar in late 2002, but the first half of the decade saw expectations for strong growth in Europe after the financial crisis followed by a flight to safety that maintained a relatively strong euro relative to other currencies.

How the US Dollar Got its Groove Back

While the recovery of the U.S. economy has been somewhat unspectacular, it has at least been steady and heading in the right direction for the last few years. Europe, on the other hand, has been plagued with banking fears, political unrest and slow if not stagnant growth.

As a result, the European Central Bank has embarked on a monetary policy that has pushed rates into negative territory and involved quantitative easing with a huge bond buying program. Expectations of economic growth have jumped following the surprise result of the American presidential election and that has been supporting for the U.S. dollar as President-elect Donald Trump’s promises of infrastructure investment and tax cuts, financed by increased debt, have significantly raised the prospects for early and subsequent Federal Reserve interest rate increases.

What This Means for Euro-Denominated Trades

The euro’s continued decline could be good for European economies as the weaker exchange rate will make the region’s exports more competitive and should encourage inflation, which has remained stubbornly below the ECB’s target of 2%. As the U.K. will find, with the weaker currency, some dollar-denominated imports such as oil and natural gas will rise in cost. Still, few in Europe are likely to object to a more competitive exchange rate.

The euro fell to a low of $1.046 in March on the expectation that the Fed would raise rates at least once or twice during 2016. In practice that hasn’t happened, resulting in a minor retrenchment. Now, the euro is likely to plumb those depths and more in 2017 as the Fed is expected to raise rates in December and it’s contemplating, according to Goldman Sachs, a further three rate increases in 2017.

Not everyone however is in agreement that parity is a certainty in 2017. A Wall Street Journal article quotes Jeffrey Yu, head of the U.K. investments office at UBS Wealth Management saying “If you just look at how the euro-zone has performed in terms of data, things look better than they did the last time people were gunning for parity.”

The euro-zone economy has grown slowly but consistently for each of the last nine quarters, expanding by between 0.3% and 0.8% of gross domestic product every three months. The euro’s weakness is not just down to the economy. Doubts exist about the political robustness of the European model. This year, the United Kingdom voted to leave the European Union in a shock June referendum. Next year will see elections in France, the Netherlands, Germany and a host of smaller states with populist, largely anti-globalization parties coming to the fore. Continued modest growth is by no means a certainty, but anxiety driven by this uncertainty is weighing on the euro and driving its decline against the dollar.

For firms selling into the European market, forward hedging may be a prudent move. For those sourcing or buying from — or exposed to euro-priced supplies — look out for cost reduction opportunities if the currencies continue toward parity.

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