Editor’s Note: This article serves as a short primer to upcoming changes in trade policies in Trump’s world of trade. For more detail on any of the issues presented, click on the subsection headers and you will be redirected to the full article.
For over a year, Trump’s words and actions have painted a clear landscape signaling the basic elements that will make up his world of trade. The new world, he says, will put America first, bring manufacturing jobs back to the U.S., rebalance American imports and exports, strictly enforce trade agreements, feature a renegotiated NAFTA and and contain TPP at all.
In fact, the wheels of change are already turning; during his first full business day in office, the President signed an executive order signaling his intent to withdraw from the Trans-Pacific Partnership, and within the first week the White House announced Trump would pursue a border adjustment tax policy to force Mexico to pay for a border wall. Those who thought Trump would act in moderation on trade had their hopes slashed immediately.
Yet the nuanced outcomes of trade reform have been impossible to predict under any president, and to begin now would be foolish. Changes in global conditions and tit-for-tat tariffs can drive sharp and unexpected turns in trade policy at any moment.
Even Trump’s uncharacteristically steadfast position on trade reform will be subject to long processes, negotiations and retaliations. Trade wars take time to start, and some agreements are too important to abstain.
Should supply chain managers worry? No … and yet.
As executives prepare for the new administration, Supply Chain Dive has put together a short primer answering four questions that are and will continue to be present on supply chain managers’ minds throughout the next four years.
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What can Trump do as President?
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What will happen to NAFTA?
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Will there be a trade war with China?
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How does the border, or border adjustment tax, work?
Prior to debating the issues, what can the President even do with regards to trade?
Originally, the Constitution gave the president only the ability to make international treaties with the express consent of 2/3 of the Senate. Meanwhile, the power to regulate interstate and foreign commerce, or collect taxes, duties or other tariffs resided with Congress.
Over time, however, Congress has granted the president additional deal-making and enforcement powers with regards to trade. Specifically, the president may raise tariffs under very specific conditions, such as a state of emergency, or in retaliation for similar trade barriers, and as set forth in past legislation. Finally, the Trade Promotion Authority – originally authorized for the TPP – guarantees an up or down vote on any treaty the President negotiates, rather than subjecting international agreements to the amendment process.
Theoretically, President Trump cannot unilaterally raise tariffs or taxes unless he finds a loophole in an old legislation. Negotiating and withdrawing from international treaties, however, remains within his power.
Read More >>The power to withdraw from international treaties raises what is perhaps the biggest question in Trump’s world of trade: is the decades-old North American Free Trade Agreement in real danger of radical change or dissolution?
The answer is … maybe, but nobody will really know until the negotiations begin. What is known today is that President Trump seeks to renegotiate the agreement, and Mexico and Canada appeared to have acquiesced to this request.
However, negotiations may still take years – the original NAFTA talks lasted two years – and the stakeholders are only now beginning to consider what may have to change. NAFTA, after all, was signed before the age of the Internet or e-commerce.
In short, the issue of a NAFTA renegotiation will likely be long and at times dramatic, but heavily covered. Supply chain managers have little to worry about until concrete negotiations begin, and even then, there will be ample time for planning and strategy adjustment.
Read More >>Former President Obama’s pivot to Asia had the side effect of accentuating China as one of the country’s top competitors, and relations appear to be deteriorating to suggest a potential trade war.
The Trump administration appears to welcome this heightened risk, too. On the campaign trail, the president promised to immediately label China a currency manipulator, and since his nomination, Trump appointed China critic Peter Navarro to a lead economic policy role within the White House.
Such a war could have dramatic effects: the U.S. exported $104.1 billion products to China last year, and imported another $423.4 billion. Recognizing this danger, even Jack Ma, owner of Chinese e-commerce giant Alibaba, has spoken out, pleading both governments to avoid the repercussions of a trade war.
Yet, the possibility of an all-out, imminent trade war may be overblown.
In its most traditional sense, a trade war would require a series of tit-for-tat discriminatory trade actions, which in turn take time to debate and implement. Either country could begin the process at any time with a unilaterally discriminatory and damaging tariff.
If no sudden tariff is placed, however, a trade war will manifest itself more quietly, and in a more targeted manner than the term suggests.
In one example, a quieter trade war is being waged in the seas of the Pacific Ocean. As the U.S. retreats from the Trans-Pacific Partnership (TPP), China has stepped up to fill the market access gap left behind. Meanwhile, the U.S. has made it clear the government will pursue bilateral trade deals with some of the countries included by the TPP. The rush for market access in Asia is set to continue throughout the Trump administration.
In either case, China and the U.S. are poised to continue clashing economically over the next four years – but how drastically they do depend entirely on the two countries’ respective leadership.
Read More >>Under the guise of rebalancing the nation’s imports and exports, both President Trump and the GOP have proposed a sort of border tariff to take effect within the next four years.
The two plans are slightly different, however. The GOP plan is part of a larger corporate tax reform, and the border adjustment tax suggested there would be balanced out by a lower corporate tax rate and a change in the tax code to allow companies to exempt imports, among other shifts.
Meanwhile, Trump has offered far fewer details with regards to his own plan – which he fondly calls the “big, border tax” – except that he will impose a 35% tariff on goods imported from companies who left the U.S. The timeline, and the method he would use to do so remains unclear, but the promise is widely advertised.
In either case, the already-controversial GOP tax plan must first pass Congress and be signed into law by the president. Meanwhile, the president – as previously mentioned – would either have to work with Congress or find an arcane law to enforce in order to create a new border tariff..
However, either of these two scenarios present a high risk for import-reliant supply chains, and many have already spoken out or changed plans to adjust their chains in expectation.
Read More >>From China to NAFTA, import taxes to checks and balances, each of these four issues will be heavily contested during the Trump administration. Trade wars, trade deals and new taxes may take years to begin processing, negotiate, and implement, but so do shifts within larger supply chains. Consideration and preparation are critical for today's supply chain manager, and in case of a unilateral surprise, it is well for them to keep track of the issues as they progress so they and their companies are not caught empty handed when change comes knocking.
