Reuters“China and the United States agreed to a ceasefire in their bitter trade war on Saturday after high-stakes talks in Argentina between U.S. President Donald Trump and Chinese President Xi Jinping, including no escalated tariffs on Jan. 1.”
“Trump will leave tariffs on $200 billion worth of Chinese imports at 10 percent at the beginning of the new year, agreeing to not raise them to 25 percent ‘at this time’, the White House said in a statement.”
“’China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries,’ it said.”
“’China has agreed to start purchasing agricultural product from our farmers immediately.’”
“The two leaders also agreed to immediately start talks on structural changes with respect to forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture, the White House said.”
WHY IT MATTERS: The trade war appears to be temporarily put on hold. A win for China, President Trump has agreed to hold off on raising tariffs on $200 billion worth of Chinese imports from 10 percent to 25 percent on January 1. Instead, the two sides agreed on a 90-day window to resolve the underlying issues in the trade dispute. If no deal is struck, the U.S. may raise tariffs as originally planned. In a win for President Trump, China will purchase more U.S. agricultural, energy, and industrial products in the near-term. News of an interim deal gave markets a shot in the arm and could arm President Trump with some political capital for his trade fights to come.
KEY QUESTIONS: Is this deal really a landscape shifting event? The threat of tariffs remains, just a bit further down the road, and the underlying issues plaguing the trade relationship remain unresolved. Does the deal change the fundamental decision calculus of either side? Who came out on top of this deal: President Trump or Chinese President Xi Jinping?
“China Will Slash Car Tariffs, Trump Says, in a (Vague) Tweet,” New York Times
“After the negotiations over steak dinners were done, after he said his goodbyes to President Xi Jinping of China and after both governments issued their public statements about the trade truce between the United States and China, President Trump had one more surprise to drop.”
“In a late-night Twitter post on Sunday, Mr. Trump said that China had agreed to make a small but politically significant concession to the United States: It would drop tariffs on imports of American-made cars.”
“’China has agreed to reduce and remove tariffs on cars coming into China from the U.S.,” he wrote. “Currently the tariff is 40%.’”
“The disclosure took trade watchers and auto industry figures in both countries by surprise. The issue of auto tariffs had not appeared in the public disclosures from either the United States or Chinese governments issued after the two sides hammered out their temporary trade-war truce.”
WHY IT MATTERS: It is unclear if China agreed to eliminate its auto tariffs, despite President Trump’s tweet. Neither statements from the United States or China about the Buenos Aires meeting mentioned auto tariffs. Confusion about what was agreed to between the two sides would not bode well for future talks. China maintains a 15 percent auto tariff, which was ratcheted up to 40 percent for U.S. vehicles due to the trade war. Beijing had already promised to bring down its 15 percent auto tariff, which may be the source of confusion. The U.S. exported about $10.3 billion worth of autos to China in 2017 and about $50 billion globally. U.S. auto exports to China are valued at about one percent of the market, most of which is serviced by domestic production, which includes joint ventures between U.S. auto companies and Chinese companies.
KEY QUESTIONS: What are the implications and consequences of President Trump misinterpreting a Chinese commitment and tweeting about it? Is a reduction in China’s auto tariff a significant development?
“Trump says he will withdraw from NAFTA, pressuring Congress to approve new trade deal”
“President Donald Trump said Saturday he intends to formally notify Canada and Mexico of his intention to withdraw from the nearly 25-year-old North American Free Trade Agreement in six months. The move would put pressure on Congress to approve his new trade deal with the two U.S. neighbors.”
“’I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States,’ Trump said on board Air Force One after departing Buenos Aires, where he signed the U.S.-Mexico-Canada Agreement with the leaders of those two countries.
“’And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well,’ Trump added.”
“Trump’s comments confirmed what many have long suspected — that he would use the act of withdrawing from NAFTA as a cudgel to force Congress into passing the new deal.”
WHY IT MATTERS: President Trump has made clear what most trade followers assumed: he will withdraw from the original NAFTA in order to force Congress to choose between his new USMCA or no trilateral trade framework for North America. His attempt at jamming USMCA through the Congress puts Democrats in a tough spot. Seizing control of the House, Democrats will have to walk a tightrope to ensure one of either NAFTA or USMCA is in place to prevent economic meltdown, while at the same time resisting President Trump’s first major trade achievement and not appearing to defend NAFTA, which many Democrats have traditionally loathed.
KEY QUESTIONS: How exactly does NAFTA withdrawal work, and how does the president have the authority to withdraw from an agreement that was partially brought into force via legislation? What is most likely to occur with USMCA now that President Trump has confirmed his intention to withdraw from NAFTA? Will Democratic members of Congress risk a fight over the deal or can they afford to give President Trump a signature foreign policy win?
“G20 sealed landmark deal on WTO reform by ducking ‘taboo words’”
“Many delegates from the world’s 20 largest economies arrived at a summit in Argentina this week determined to clinch an agreement to reform the global trade system, pushed to a breaking point by tensions between the United States and China.”
“To do so, they had to bow to U.S. and Chinese demands to drop some of the pledges that have become hallmarks of the Group of 20 industrialized nations, which represents two-thirds of the global population.”
“But they left with a communique committing for the first time to reform the dysfunctional World Trade Organization (WTO), the body supposed to regulate global trade disputes.”
WHY IT MATTERS: For the first time ever, the G20 has agreed that the WTO needs reform. The communique is an clear sign that U.S. complaints have gained traction among the rest of the G20. Meanwhile, the Trump administration insisted that the final communique not include the word “protectionism,” while China effectively vetoed any mention of “fair trade practices,” an indication of how charged trade has become on the international stage.
KEY QUESTIONS: What next? Will the G20 members be able to translate the communique into substantive reform proposals, let alone agree on ideas for reform? Is there any reason for a solution to the Appellate Body issue, which will fully come to a head in roughly a year?
“Washington tariff relief backlog hobbles US auto suppliers,”
“Suppliers to the largest US car manufacturers are waiting for decisions on more than 1,000 applications for relief from the Trump administration’s new tariffs, and have been denied requests for more than 300, in a sign of the pressure the industry faces from restrictions on imports.”
“The costs added by the tariffs come as the US auto industry is grappling with flagging demand, and has been laying off thousands of workers.”
“A Financial Times analysis of the exemption requests filed by 246 companies that supply Ford Motor and General Motors and published by the government shows these companies have filed about 1,780 requests for exclusions from the US tariffs imposed this year on steel and aluminium and on imports from China, arguing that the products are not available from American suppliers. Only 360 of those requests have been approved.”
“Industry groups have warned that the cost increases could lead to job losses in the automotive and other manufacturing industries.”
WHY IT MATTERS: Companies that supply parts to U.S. auto assemblers have yet to receive decisions on more than 1,000 applications for exemptions from tariffs imposed by the Trump administration on steel, aluminum and goods from China, according to analysis done by the Financial Times. The tariff costs add pressure to the auto industry already dealing with slowing sales and rising material costs.
KEY QUESTIONS: How does each set of tariffs impact automakers and parts suppliers? How is the auto supply chain adapting to deal with the metal tariffs and those on Chinese imports? Are the tariffs forcing companies to manufacture more parts in the United States or are they merely raising costs at different points in the auto supply chain? Why is the pace of exclusion request reviews so slow?
“Trump Tariffs Pit Auto Companies Against Each Other,”
“Fights are emerging across the auto industry over who should bear the costs of tariffs, leading to new stress along the supply chain.”
“Earlier this year, Pierburg US LLC, a manufacturer of parts used in the best-selling Ford F-150 pickup truck and Jeep Wrangler sport-utility vehicle, sued one of its suppliers over tariffs imposed this year by the Trump administration. The two sides have been in business for at least 20 years.”
“Pierburg alleged that the supplier’s refusal to ship electric motors from China to Pierburg’s factory in South Carolina unless it paid the 25% tariff cost in full was ‘extortion.’ A failure to deliver the parts could shut down multiple auto factories and “plunge the automotive industry into complete chaos,” Pierburg said in court filings.”
“The supplier dismissed Pierburg’s claims as ‘hyperbolic rhetoric,’ arguing in filings that it was under no contractual obligation to ship parts at the pre-tariff price, because of the ‘unexpected nature and monumental effect of the current trade war.’”
WHY IT MATTERS: The exceedingly complex auto supply chain is having a difficult time determining who should pay for the added costs generated by the administration’s tariffs. This has led to wrangling in contract negotiations between assemblers and suppliers, and even law suits between companies over who is responsible to shoulder the added costs.
KEY QUESTIONS: Who should be responsible for absorbing costs generated by the administration’s tariffs? Should the costs be diffused throughout the supply chain, paid by the component of the supply chain that is most immediately impacted, paid by the final assembler, or paid by the consumer? What are the implications of passing costs all the way to the consumer?