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2020 Will Be An Important Year for International Trade

Posted by Kristen Rupert on Jan 17, 2020 12:38:08 PM

The year 2020 is shaping up to be a big one for international trade - China, USMCA, Brexit, US-Europe trade, tariffs and more.  Here’s what AIM is following:

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China is a critical source of components, raw materials, semi-finished and final products for many US companies.  China’s 1.4 billion people, many of whom are entering the middle class, are an attractive and growing market for US products and services.

The US-China trade relationship has been strained for nearly two years with tariffs, counter-tariffs and rhetoric dominating the news.  This week’s signing of a US-China Phase 1 trade deal represents progress, as the Chinese committed to $200 billion in purchases of US manufacturing, agriculture, energy and services.

China also promised stronger protection for intellectual property, trade secrets and more.  Tariffs remain in place.  Many experts question whether China will actually make all the US purchases to which it has committed.

USMCA

Canada and Mexico purchase more US-made goods than the next 11 trading partner countries combined.

This critical trade agreement, which will replace the North American Free Trade Agreement (NAFTA) is at the finish line.  The US House of Representatives, including six of nine Massachusetts House members, voted in December to pass USMCA.  The US Senate voted “yes” this week.

The President will sign the agreement this week, and Canada is expected to sign shortly (Mexico has already done so.)  The USMCA strengthens and modernizes NAFTA and sets new standards for environmental protections, labor and intellectual property.

BREXIT, US-UK and US-EU Trade Agreements

The United Kingdom will leave the European Union on January 31 but will remain in the EU customs union and single market until Dec. 31.  By that time the UK and EU will have negotiated a new bilateral trade agreement.

The US and UK are beginning the process of developing their own bilateral trade agreement.  The US is the UK’s largest single trading partner.

And the UK has long been a vital market for the US and for Massachusetts. In 2019, Massachusetts-UK trade totaled more than $4.3 billion.  The EU and US are also in talks to negotiate a bilateral agreement. 

The EU-US trade relationship, with 28 EU countries doing business with the US, is the largest in the world.    

Tariffs

The US began putting tariffs in place in 2018 on solar panels, washing machines, steel and aluminum. 

The levying of tariffs on additional products, from various countries, has continued for two years and is unlikely to stop.  At present the US tariffs nearly all imports from China, at levels ranging from 10 percent to 25 percent.

China has retaliated with its own tariffs.  This past fall, the US began to tariff products from Europe—cheeses, wines, whiskey, olives, airplanes and more—as a result of a WTO ruling that Europe unfairly subsidized Airbus (airplane) production.  What to watch: will the US increase some EU tariffs to 100 percent?  Will the US put tariffs on European autos?  Will China tariffs change significantly?   

WTO

The World Trade Organization, headquartered in Switzerland, with 164 member countries, helps regulate trade between countries and features a dispute resolution process that enforces adherence to trade agreements.

When the WTO finds that a member has suffered as a result of another country’s trade activities, the negatively affected country may issue retaliatory tariffs.  The US has won most of its WTO cases. 

However, the Trump administration believes the WTO must be overhauled and has blocked the appointment of new members to the appellate body that reviews cases.  With the appellate panel now essentially disbanded, there’s no official path to resolving global trade disputes.

Although imperfect, the WTO plays a vital role in ensuring stability and fairness in world trade.  One political leader said recently, “If the WTO did not exist, we’d need to invent it.”  WTO’s future is uncertain.

New Tech Regulations

The US Treasury Department recently issued regulations related to foreign investment and national security.  These take effect in mid-February and address concerns about investment from foreign entities in “U.S. businesses involved in critical technology, critical infrastructure, or sensitive personal data.”

More information may be found at https://home.treasury.gov/news/press-releases/sm872.

In addition, the US Department of Commerce has proposed a new Supply Chain Executive Order and proposed rule “to strengthen and secure the Information and Communications Technology and Services Supply Chain.”  This rule would establish regulations to “mitigate, prohibit and unwind” certain technology-related transactions.

US Manufacturing Trends

US manufacturing had a down year in 2019 according to multiple economic indicators.  Uncertainty around tariffs, increased costs of raw materials, a global economic slowdown and other factors affected business confidence and companies’ willingness to make capital investments.

However, some trade experts anticipate healthy growth in manufacturing in 2020.  Companies long dependent on China supply chains have been making adjustments and moving some production to countries not subject to US tariffs.  The monthly AIM Business Confidence Index measures several indicators, including manufacturer confidence, which saw an uptick in December.  

Massport

The Massachusetts Port Authority continues to be a significant economic driver.

Massport is adding new international gates at Logan Airport to manage the growing number of international travelers.  Airlines, particularly JetBlue and Delta, are making significant investments at Logan.

At the Port of Boston, Conley Terminal continues a four-year pattern of record-breaking container volume.  Flynn Cruiseport has seen an increase in the number of ships calling and passengers traveling.  And the Autoport in Charlestown processes more than 80,000 vehicles annually.

The Boston Harbor dredging project, funded by the federal government and the commonwealth, will enable new, larger container ships to utilize the Port of Boston by 2021.  Massport is investing in Port operations to increase efficiency.  More than 1600 companies across New England rely on the Port to connect to the global economy, and Massport hopes to entice more export and import firms to use the Port.    

Topics: International Trade, AIM International Business Council

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