US lifts steel, aluminum tariffs on Canada, Mexico

UPDATE: May 17, 2019: On Friday afternoon, The United States Trade Representative issued a statement confirming the U.S. tariffs and all retaliation from Canada and Mexico would cease. The statement called the agreements “great news” for the steel and aluminum industries and for American farmers affected by retaliatory tariffs.

Dive Brief:

  • The Trump administration will lift tariffs on imported steel and aluminum from Canada and Mexico, according to a joint statement by Canada and the U.S. and multiple media reports. The tariffs will end within 48 hours of the statement.
  • Canada said it will remove retaliatory tariffs imposed in response to U.S. steel tariffs. Though the Mexican joint statement was not released in time for this report, it is also expected to end all retaliatory tariffs.
  • Canada and Mexico have agreed to upgrade their enforcement measures to keep cheap Chinese steel from flowing through those countries into the U.S. market.

Dive Insight:

The 25% tariffs on Canadian and Mexican steel and 10% on aluminum, in place since March 2018, were major barriers to the ratification of the United States, Mexico and Canada Agreement (USMCA), which Trump called his number one priority for 2019.

Now Republicans like Sen. Chuck Grassley, R-Iowa, who fiercely opposed the tariffs but would otherwise support the president, will be able to jump on board. Grassley objected to the retaliatory tariffs placed on American farmers by Mexico.

Earlier this month Mexico passed a new labor law, which U.S. labor unions and Democrats considered crucial to the USMCA’s fate. Apart from what may turn into further pushback from Democrats and labor unions on the enforcement of Mexico’s new law, with steel tariffs gone, the major USMCA deal breakers are gone and the deal is miles closer to passage.

Industry executives earlier this year expressed confidence the tariffs would be replaced by import quotas, but today’s announcement lays those fears to rest.

The announcement marks a cooling of tensions between the U.S. and some of its trading partners. Also today, the Trump administration agreed to delay a decision regarding taxing European and Japanese auto imports for 180 days after threatening to levy new tariffs Wednesday. Meanwhile tensions remain high between the U.S. and China.

17 May 2019 | Emma Cosgrove | Supply Chain Dive

US formally begins process for tariffs on $300B

Dive Brief:

  • The Office of the U.S. Trade Representative (USTR) has released a proposed list of Chinese imports to face tariffs up to 25%. The 136-page listof products represents $300 billion in value.
  • The list includes a wide range of products affecting nearly every industry. Excluded from the list are pharmaceuticals, some medical goods and rare earth minerals. “Product exclusions granted by the Trade Representative on prior tranches from this investigation will not be affected,” according to the document.
  • USTR will seek public comments on the product list and will hold a public hearing on June 17. Comments can be submitted up to seven days after the hearing. As a result, the earliest date the tariffs can take effect is June 24.

Dive Insight:

The release of this list from USTR formally begins the process for implementing tariffs on nearly every remaining untaxed good imported from China.

The list includes raw materials and finished goods across dozens of industries, touching nearly every U.S. business — and in turn, every consumer —in some way. The products could face duties up to 25%, according to the document.

Matthew Shay, president and CEO of the National Retail Federation, called the proposed fourth round of tariffs “far too great a gamble for the U.S. economy.” An estimate from the Trade Partnership found GDP could fall by 1% with 25% tariffs on $300 billion worth of Chinese imports and retaliatory tariffs from China in place.

Despite USTR initiating the process for the fourth tranche of tariffs, Donald Trump appeared to waffle on the implementation of the tariffs.

“We have another $325 billion that we can do, if we decided to do it,” he said Monday, as cited in The Wall Street Journal, but added “I have not made that decision yet.”

Over the past several days, Trump has taken to Twitter to advise businesses to shift their supply chains to avoid tariffs. “Make your product at home in the USA and there is no Tariff. You can also buy from a non-Tariffed country instead of China,” he tweeted Tuesday morning.

Shifting sourcing to another country is seldom a change a business can make in a matter of weeks. Products manufactured in the U.S. are not automatically exempted from tariffs, as they likely include parts sourced globally. In addition, products manufactured in the U.S. and exported to China face retaliatory tariffs.

14 May 2019 | Shefali Kapadia | Supply Chain Dive

Trade war escalates: China, US to raise tariffs

Dive Brief:

  • In response to a tariff hike on $200 billion worth of Chinese imports, China will raise the tariff rate on $60 billion worth of U.S. imports beginning June 1, according to a Monday morning announcement from Chinese Ministry of Finance.
  • The $60 billion of goods currently face a tariff of 5% or 10%. The tariff rate on about 2,500 products will rise to 25%, and the rate on another 1,078 products will rise to 20%. 974 items will face a tariff rate of 10%, and 595 goods will be taxed at 5%.
  • In a separate announcement Friday evening, the U.S. Trade Representative Robert Lighthizer said in a statement his office will “begin the process” of putting tariffs on all Chinese imports that remain untaxed. These goods are valued around $300 billion. The fourth round of tariffs requires a 60-day public comment period before implementation.

Dive Insight:

The escalating trade war between the U.S. and China will require import and export supply chains to plan accordingly for a shift in costs, supply and demand.

On the export side, China’s list of products that would face 25% tariffs includes animal and food products, minerals, fibers, machinery, toys and furniture. Although retaliatory tariffs from China have less of an impact on the U.S. economy than U.S. tariffs on Chinese goods, the agriculture industry faces significant risk. Higher duties on animal and food products could make U.S. exports of these goods less appealing to Chinese buyers, creating even higher stockpiles for farmers and lowered prices.

On the import side, implementing tariffs on the remaining $300 billion worth of goods from China would affect nearly every industry that imports anything from China, from a small component to a finished product.

The Trade Partnership estimated tariffs on all remaining imports, plus Chinese retaliation, would decrease GDP growth by 1% and cost the average family of four $2,294 annually.

While many businesses planned for the possibility of a tariff hike to 25% on $200 billion worth of Chinese imports, it’s unlikely companies planned their supply chains around tariffs on another $300 billion worth of goods. “I think companies falsely relaxed a little bit hoping for an agreement,” Maine Pointe CEO Steve Bowen told Supply Chain Dive.

He said many U.S. companies lack optionality, which builds multiple supplier options into the value chain and allows for quick shifts.

In Monday morning tweets, Donald Trump once again suggested businesses shift their sourcing. “The Tariffs can be … completely avoided if you by from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs,” he wrote in a series of tweets.

Some businesses moved sourcing, in some cases from China to Vietnam, while others found it more cost effective to continue sourcing from China with the 10% tariffs in place.

“As this tariff moves to 25%, the equation will change quite significantly,” Bowen said. China may no longer continue to be the least expensive option. “This will tilt the scale for companies to begin to make many more moves and change the supply base,” Bowen said.

Changing suppliers is certainly not a change that happens overnight. Bowen gave the example of a client with about 30 facilities worldwide that has just started a full network optimization study, which would include risk mitigation from tariffs. The study would result in a five- to 10-year long plan. “This kind of shift in supply chain … this is a years-long process,” Bowen said.

Tariffs on $300 billion would require a public comment of at least 60 days, presenting businesses with a two-month buffer period to conduct cost analyses and adjust their supply chains. Anticipation of this fourth round of tariffs could result in another rush to import goods before the levies take effect.

“Call it a couple months, call it three months, I don’t know. Ambassador Lighthizer can detail that,” White House Economic Advisor Larry Kudlow told Chris Wallace on Fox News Sunday, in response to a question of when the tariffs on $300 billion might take effect. “But that will take some time and then of course the president is going to have to make the final decision on that.”

In the interview, Kudlow also said there’s a “strong possibility” Trump and Chinese President Xi Jinping would meet at the G20 summit in Japan in late June. Their last meeting in December at the G20 summit in Buenos Aires, Argentina, resulted in a 90-day cease-fire on the trade war and delayed a planned tariff hike.

13 May 2019 | Shefali Kapadia | Supply Chain Dive

Trump says ‘no rush’ to reach a trade deal as 25% tariffs take effect

UPDATE: May 10, 2019: Trade talks between the U.S. and China ended Friday without a deal, according to multiple news reports. Treasury Secretary Steve Mnuchin told CNBC the discussions were “constructive” but offered no further detail. The administration has not announced if or when the two nations will meet for another round of talks.

Dive Brief:

  • Tariffs on $200 billion worth of imports from China rose from 10% to 25% Friday at 12:01 a.m. ET. China has threatened “necessary countermeasures,”but as of Friday morning it’s unclear what shape the retaliation will take.
  • Goods in transit exported from China before May 10 are not subject to the new tariffs, according to a document in the Federal Register. The 25% duties are “effective with respect to goods (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019,” the document states.
  • The tariffs took effect as trade negotiations between the U.S. and China unfolded. In a series of tweets Friday morning, Donald Trump said the talks continue “in a very congenial manner” but said “there is absolutely no rush” to reach an agreement. Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin met Thursday for trade talks and are expected to resume talks Friday, Reuters reported.

Dive Insight:

Trump offered sage advice to businesses as the tariff rate increased by 15%. “Waivers on some products will be granted, or go to new source!” he tweeted. “Build your products in the United States and there are NO TARIFFS!”

Going to a new source is a strategy a number of businesses have employed, though often that means moving to a supplier base in other parts of Asia rather than the U.S. Either way, a change of this magnitude is rarely a task measured in days or even weeks.

In light of the tariffs, Brooks Running plans to move the majority of its running shoe production from China to Vietnam.

GE Appliances Executive Director of Sourcing Rich Wrightington said the company has considered the possibility of finding new suppliers. He named Eastern Europe and Southeast Asia as “great places to look” and said GE has not found opportunities to move sourcing to the U.S. Wrightington said some existing suppliers have factories in multiple countries, allowing GE to stay with the same supplier but move sourcing out of China.

Moving sourcing is not always the most cost-effective option, though. Last year, a client for Maine Pointe conducted a series of “what-if” tariff scenarios before the 25% tariffs took effect and still found China was the lowest cost option.

Shifting sourcing to other nations in Asia also requires risk mitigation on the buyer’s behalf for issues such as forced or child labor.

No matter what strategy businesses choose to mitigate tariffs, “the increase to 25% will have huge implications for their bottom lines while also likely requiring customers to share the economic burden,” Lori Fox, vice president of customs brokerage services at American Global Logistics, told Supply Chain Dive.

Countermeasures from China won’t have as much of an effect on the overall U.S. economy, but it could be devastating to the U.S. agricultural industry. The American Soybean Association called the rise to 25% the “worst case” for U.S. soybean growers. The sentiment comes in stark contrast to Trump’s series of tweets, in which he touted his trade policies as a boon to farmers.

Trump also said Friday “the process has begun” to place 25% tariffs on another $325 billion worth of Chinese imports, a threat he first made in a pair of tweets Sunday. At that point, nearly every good the U.S. imports from China would face a duty of 25%.

The National Retail Federation noted the possibility of a fourth tranche would result in another rush to import goods, just as U.S. ports saw in the third and fourth quarters of last year, before 25% tariffs were expected to take effect.

In a press release last month, Port of Long Beach Executive Director Mario Cordero said many warehouses on the West Coast are full with inventory that resulted from last year’s tariff rush. Should another import rush happen, storage space may be in short supply for the incoming goods.

10 May 2019 | Shefali Kapadia | Supply Chain Dive

China threatens ‘necessary’ retaliation to tariff hike

Dive Brief:

  • A spokesperson for the Chinese commerce ministry threatened “necessary countermeasures,” according to The Wall Street Journal, after the promised increase in the U.S. tariff rate on $200 billion in Chinese imports from 10% to 25% was published in the Federal Register.
  • The Notice of Modification in the Federal Register states the Office of the U.S. Trade Representative (USTR) will establish a process where businesses may request to be excluded from the tariffs — an option not offered on the list in question when 10% tariffs went into effect in September 2018. “USTR will publish a separate notice describing the product exclusion process, including the procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request,” reads the Federal Register.
  • New York Times analysis laid out what retaliation China might take. Possibilities include resuming the import barriers on American soybeans (which were suspended in December with the now-dead truce) and targeting tariffs at imports that could hurt Trump politically. Non-tariff retaliation like delaying imports in ports or slowing down the supply chains of private American companies that rely on Chinese parts to manufacture their products are also possibilities.

Dive Insight:

Negotiations resumed in Washington Thursday and though tensions have certainly flared this week, the fact that talks are going ahead means both sides still see merit in coming to the table.

Economists say retaliatory tariffs from China likely won’t have a significant effect on the U.S. economy, because the U.S. imports much more from China than China imports from the U.S.

Where U.S. businesses are likely to feel the hit of Chinese retaliatory tariffs is in agriculture. Trump’s tweet Sunday sent grain markets to a 42-year-low.

The American Soybean Association (ASA) called the current situation, with tariffs set to increase, the “worst case” for U.S. soybean growers in a press release issued Tuesday. As agricultural exports to China in 2018 dropped nearly 30% year over year, net farm income fell by nearly 10%, according to Newsweek.

“After so many threats and missed deadlines for concluding negotiations, this ongoing uncertainty is unacceptable to U.S. farmers,” Davie Stephens, president of the ASA and a grower himself, said in a statement. “With depressed prices and unsold stocks forecast to double before the 2019 harvest begins in September, we need the China market reopened to U.S. soybean exports within weeks, not months or longer.”

Stephens added soybean farmers have displayed “great patience” with the administration, but that “patience is wearing thin.”

The Ag Economy Barometer, a measure of sentiment in the agriculture industry developed by Purdue University, showed farmer sentiment in April at its lowest point since the trade war began — notably before President Trump’s surprise tweets Sunday announcing the tariff hike.

A key USDA report will be released Friday detailing how much corn and soy is currently in storage around the world.

“It’s hard to see what could come as bullish from this report, which should show ample stocks in plenty of major export countries,” said Jacob Christy, a trader at The Andersons, in a Thursday morning video report. Ample stocks would indicate lower demand for exports and therefore lower prices in yet another hit to U.S. producers.

09 May 2019 | Emma Cosgrove | Supply Chain Dive

In the service of free trade

Free trade zones offer many tax and logistics benefits to the automotive supply chain. DP World, with its flagship facility in Dubai, wants to expand these services in markets in the Middle East and Africa, as well as the UK and US

For decades, governments have used ‘free zones’ to encourage foreign direct investment and spur export activity. When designed well, these areas provide ‘plug-and-play’ office and warehouse facilities, labour access, as well as preferential regulatory conditions, including bonded, duty-free storage and income tax holidays.

Many of the most successful examples, such as Jebel Ali Port in Dubai, Singapore and Shanghai, are also integrated into logistics networks and industrial clusters. 

Such Special Economic Zones (SEZs), as they are also called, have grown dramatically in the past 30 years, notably in emerging economies with otherwise protective import and trade regimes. For the automotive industry, where slow-moving bureaucracy can put a hard brake on just-in-time flows, SEZs have been attractive for setting up distribution and modification centres for vehicles and spare parts, helping to reduce inventory and trade costs.

Today, changing technology, regulations and markets look set to transform the value and relevance of such SEZs again. In emerging markets, including those in many parts of Africa, it is now more vital that such zones are part of wider international economic strategies that can tap into local skills, services and logistics. For industries like automotive, it rarely makes sense to develop supply chains in isolation. 

SEZs are also enjoying new opportunities, as advanced economies in North America and Europe show more interest in developing such areas, both to deal with trade rules as well as to connect new, high-tech value chains. For automotive, this could include the growing complexity around electric vehicle and battery supply chains.  

Whilst SEZs have long been centres of logistics and light assembly, there is also more potential to exploit their benefits for vehicle production, whether for new vehicle technology or in establishing new manufacturing centres in expanding markets such as the Middle East and Africa. 

A global growth story
Free trade zones have existed for decades. The first ‘Export Processing Zone’ was established in 1947 in Puerto Rico to serve the US. It included exemptions from US income taxes for a decade and offered users pre-built warehouses and factory shells. In the late 1950s, Ireland’s Shannon airport was also designated as the first ‘free zone’ with duty-free and export incentives. 

Such zones have expanded in line with global trade, with automotive playing a key role. Today, the World Free Zones Organization (WFZO) estimates that there are more than 2,200 SEZs globally employing 100m people. 

Such zones have played a big role in the Chinese economy for the past 30 years, for example, and now number around 130. Since it was set up in 2013, the China Pilot Free-Trade Zone in Shanghai has processed trade volumes worth more than $100 billion.

The Middle East and Africa have seen a recent rise in SEZs, too. South Africa has expanded the Coega SEZ in Nelson Mandela Bay, home to an FAW vehicle plant. In Morocco, which has a national strategy to create more free zones, there has been investment at the port of Tangier, another important automotive hub. 

There are more than 47 free zones in the United Arab Emirates alone, according to the WFZO. One of the largest and most significant areas in the region is the Jebel Ali Free Zone (Jafza) in Dubai, which now encompasses Jebel Ali Port and the new Al Maktoum International Airport, serving more than 7,500 companies.  

The scope of free trade zones varies significantly, from those centred around specific sectors to domestic market access or export-oriented growth. According to Charles ‘Chuck’ Heath, chief operating officer of DP World’s parks, logistics and economic zones vertical, who has worked to create many, the key ingredient for successful free zones is to encourage investment and trade through a stable regulatory environment, coupled with investment and business services, readily available facilities and a competitive cost for doing business, with the strategy forming part of the national economic agenda.

“In the ideal scenario, the regulatory framework has to be supported with the establishment of an SEZ authority with wide ranging power to oversee a national strategy,” says Heath. ”They need to include ’one-stop shop’ services as well as ensure compliance within the zone. DP World will work very closely with our partners in the development and operation of their SEZs.” 

Despite the need for government support, Heath suggests that SEZs are more customer-centric when public-private partnerships or private entities manage operations, rather than them being purely in government hands.  

Jebel Ali is again a leading light. DP World, which is owned by the government of Dubai but operates as a private company, coordinates closely with both UAE authorities on taxes and infrastructure investment, plus investors and developers. 

The future of automotive trade
This model has attracted automotive companies, with the number of manufacturers, tier suppliers and distributors in Jebel Ali growing sevenfold in the last ten years to more than 500 companies, according to Heath. Most lease warehouse space or contract with 3PLs in the free zone to manage their supply chain operations across the Gulf. 

Hellmann Logistics, for example, runs parts distribution centres on behalf of Volkswagen Group and Ford’s Middle East divisions. Jafza owns the warehouse that Volkswagen operates, and leases it to Hellmann. For Isuzu, DP World developed a built-to-suit warehouse, which is operated by Nippon Express.

For DP World, which operates nearly 80 port and inland terminals globally, developing such automotive services in and around SEZs and industrial parks is a strategic offering, both at Jebel Ali and at other locations. 

DP World‘s current portfolio of parks and economic zones is growing with projects operational or under development in Dubai; London, UK; Caucedo, Dominican Republic; Chennai and Mumbai, India; Posorja, Ecuador; Sokhna, Egpyt; Dakar, Senegal; and South Carolina, US.

While emerging markets are a major focus, the company is expanding logistics parks in the UK and the US into full-service trading zones. For example, DP World has acquired a land bank in South Carolina, already a growing centre of premium automotive manufacturing and exports. 

With the uncertainty over Brexit, there is interest in establishing free trade zones to support future trade. DP World’s London Gateway port, one of the largest private infrastructure projects in Europe over the past decade, could emerge as a potential location for such activities. It already has the customs clearance facilities and infrastructure in place, including 835,000 sq.m of logistics park, dedicated rail services and tracks, and close access to the UK’s major markets. 

All of these locations have significant potential for automotive. London Gateway, for example, would be well suited for service parts distribution centres or value-added vehicle customisation, facilities in which DP World already has considerable experience in leasing and developing, especially in Dubai. 

Manufacturers might also consider hosting high-value vehicle and component production for domestic or export purposes in such locations. One growth area could spring from vehicle electrification, the supply chains for which encompass new geographies and complex rules for shipping lithium batteries and fuel cells. As carmakers connect this value chain to existing production and look to get products to market faster, they will require robust logistics connections, access to skilled labour and services to manage complex regulations. A well-designed SEZ could help satisfy all these requirements.   

For DP World, free zones and logistics parks like Jebel Ali and London Gateway will help sectors such as automotive not only because of their fiscal advantages. They need to be at the centre of a wider mix of benefits that includes access to cluster bases and logistics services, industry-specific expertise at both national and international levels, as well as synergies between businesses operating within their boundaries. As vehicle technology and requirements change, such engagement will become even more important.

04 April 2019 | DP World | Automotive Logistics

Trump: Tariffs on $200B Chinese imports will rise to 25% Friday

UPDATE: May 6, 2019: As of 10 a.m. Monday, USTR had not sent an official notice of tariffs increasing.

Dive Brief:

  • Tariffs on $200 billion worth of imported goods from China will increase from 10% to 25% Friday, May 10, President Donald Trump tweeted Sunday afternoon. The Office of the U.S. Trade Representative (USTR) had not sent an official notice of the tariff increase as of Sunday evening.
  • “The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump tweeted.
  • This week, a large contingent of Chinese officials will meet with U.S. negotiators in Washington, D.C. in what seemed like final end-stage talks before this afternoon. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer met with negotiators in Beijing last week, when Mnuchin described the talk as “productive.” On Friday Trump told reporters in the Oval Office, “We’re getting close to a very historic, monumental deal and if it doesn’t happen, we’ll be fine too, maybe even better,” according to CNN.

Dive Insight:

After the president delayed the previously planned March tariff raiseindefinitely, many businesses settled into the outlook that negotiations between the U.S. and China were going well. Speculations turned to whether the existing 10% tariffs would remain or be dropped when an agreement was reached. Today’s tweets turned those expectations on their heads.

After the president’s tweets, National Retail Federation Senior Vice President for Government Relations David French said, “Tariffs are taxes paid by American businesses and consumers, not by China. A sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses, especially small companies that have limited resources to mitigate the impact” in a statement emailed to Supply Chain Dive.

It’s unclear what Trump refers to with $325 billion “of additional goods sent to us by China remain untaxed.” The first and second tranche put tariffs on $50 billion worth of imports. The third round placed 10% duties on $200 billion worth of goods from China. Last year, the U.S. imported a total of $539.5 billion in goods from China, according to USTR, indicating only $289.5 billion worth of goods remained untaxed.

06 May 2019 | Emma Cosgrove & Shefali Kapadia | Supply Chain Dive

Mexico passes labor law crucial to USMCA ratification

Dive Brief:

  • The Mexican Senate overwhelmingly passed a highly-anticipated law granting secret ballots to Mexican workers voting on union representation and contract terms, according to multiple reports.
  • Democrats in the U.S. House of Representatives and U.S. labor leaders marked this law a condition of their support for the United States, Mexico and Canada agreement (USMCA), which has yet to be ratified by any of the three countries that signed onto it in October.
  • Democrats and labor leaders previously said passage would not be enough to gain their support, and they would require evidence of implementation and enforcement to be satisfied.

Dive Insight:

Despite this seemingly good news for President Trump’s top priority this year, the USMCA may be in more trouble than ever.

Just after the law passed, Democratic Senate Majority leader Chuck Schumer told reporters, “We talked about we need much more adequate enforcement of labor protections,” on his way out of a meeting with the President, White House Economic Advisor Larry Kudlow and Speaker of the House Nancy Pelosi.

In a tweet Tuesday, AFL-CIO President Richard Trumka threatened to walk away if the White House “chooses to waste” an opportunity that helps North American families, indicating the labor organization is far from satisfied with USMCA.

The deal is facing even stronger opposition from within the President’s own party than it was a week ago.

In Sunday’s Wall Street Journal, Sen. Chuck Grassley, chairman of the Senate Finance Committee, published an op-ed titled “Trump’s Tariffs End or His Trade Deal Dies.” In the piece, he called for an end to steel and aluminum tariffs arguing, “jobs, wages and communities are hurt every day these tariffs continue — as I hear directly from Iowans. It’s time for the tariffs to go.”

Grassley did not offer his opinion on the possibility of import quotas replacing tariffs, which some industry executives are starting to see as a likely alternative.

Grassley will meet with President Trump at the White House to discuss trade policy Thursday, according to Politico.

1 May 2019 | Emma Cosgrove | Supply Chain Dive

EU proposes tariffs on $20B of US imports

Dive Brief:

  • The European Union on Wednesday released a preliminary list of U.S. imports to be considered for tariffs, in response to a World Trade Organization (WTO) ruling that found the U.S. illegally subsidized Boeing. The list includes products such as seafood, fresh and dried produce, nuts, alcohol, chemicals, adhesives, suitcases, handbags and tractors, representing a total of $20 billion of U.S. exports to the EU.
  • The EU’s list follows a proposal last week from the Office of the U.S. Trade Representative (USTR) to put tariffs on $11 billion worth of EU imports. At the time, the EU said it was ready to retaliate in kind. “But let me be clear, we do not want a tit-for-tat,” EU Trade Commissioner Cecilia Malmström said in Wednesday’s announcement. “While we need to be ready with countermeasures in case there is no other way out, I still believe that dialogue is what should prevail between important partners such as the EU and the U.S.”
  • An arbitrator appointed by the WTO will decide the value of goods appropriate for tariffs. The EU will release a final list “taking into account the arbitrator’s decision in the near future,” the European Commission said.

Dive Insight:

While the lists of tariffs from the EU and U.S. are preliminary, the EU proposal sounds a warning bell for U.S. companies with global supply chains that import from or export to the EU. There’s a possibility the WTO could determine the values of goods subject to tariffs must be lower than the proposals, or the EU and U.S. could follow through on a commitment made last year to work toward zero tariffs. Still, it’s likely many of these businesses will plan around the worst-case scenario to mitigate potential tariff impact.

A similar situation unfolded with tariffs on $200 billion worth of Chinese imports. Although the duty rate remains at 10%, companies such as Dollar Treeand Williams-Sonoma shifted their business plans and sourcing with the assumption tariff rates would rise to 25%.

“The only way for a business to operate is to assume things could get worse before they get better,” Maine Pointe CEO Steve Bowen previously told Supply Chain Dive.

Retaliatory tariffs on $20 billion worth of U.S. imports to the EU could prove particularly taxing for U.S. businesses. The U.S. exported $319 billion worth of goods to the EU last year, according to data from the Census Bureau. Top categories included machinery, pharmaceuticals and medical equipment.

In 2016, the latest data available from USTR, U.S. exports of agricultural products to the EU totaled $11.5 billion, including nuts, soybeans, wine and beer and prepared food. Several of these items are on the EU’s preliminary list of goods to face countermeasures.

The likelihood of an impending trade resolution seemed to increase when the EU gave the green light Monday to open formal negotiations with the U.S. The EU continues to emphasize the U.S. is an important trading partner and that it remains open to discussions. So far, no specific dates for talks have been announced by the EU nor the U.S. This latest list of proposed tariffs could sour the mood and add further tension to U.S.-EU relations.

18 April 2019 | Shefali Kapdia | Supply Chain Dive

EU green lights US trade talks amid tariff threats

Dive Brief:

  • The Council of the European Union on Monday authorized trade talks with the U.S. to seek the elimination of tariffs on industrial products. The negotiations follow through on a joint statement made last July by EU Commission President Jean-Claude Juncker and Donald Trump to work toward zero tariffs.
  • The EU’s opening of negotiations follows a U.S. proposal last week to put tariffs on $11 billion worth of imports from the EU following a dispute over aircraft subsidies. In response, the European Commission reportedly drafted a list of tariffs on 20 billion Euros ($22.6 billion) of U.S. imports, according to Reuters.
  • The EU Council said it would unilaterally suspend negotiations if the U.S. put further trade restrictions on European products.

Dive Insight:

The EU Council’s move to begin formal trade talks with the U.S. is several months in the making and separate from the recent U.S. threat to impose tariffs on $11 billion worth of goods.

The coincidental (or not) timing of the latest tariff threat further escalates tensions between the two trade blocs and could cast a shadow over the negotiations.

The EU Council laid out requirements for the negotiations: The talks won’t conclude as long as tariffs on steel and aluminum remain in place, and the EU can suspend negotiations if the U.S. adds trade restrictions (such as the proposed tariffs) to European goods. Any violation of these parameters could quickly unravel the talks.

The subsidies to Airbus and Boeing are the latest in a saga of escalating tensions since the July 2018 agreement to seek zero tariffs. The U.S. and EU reportedly disagreed on how to proceed with the trade talks and what exactly was agreed upon at the meeting, Bloomberg reported.

EU Trade Commissioner Cecilia Malmström said agriculture would not be part of the negotiations. The EU Commission’s announcement from today said trade talks would exclude agricultural products.

Gordon Sondland, U.S. ambassador to the EU, said agriculture was “absolutely discussed” during the meeting in July. A joint statement from Juncker and Trump said the leaders will look to increase trade “in “services, chemicals, pharmaceuticals, medical products, as well as soybeans.” Soon after, Trump tweeted “European Union representatives told me that they would start buying soybeans from our great farmers immediately.”

It’s unclear when the trade talks will formally begin. The EU is expected to publish a proposed list of U.S. imports subject to tariffs this Wednesday, according to Reuters.

15 April 2019 | Shefali Kapadia | Supply Chain Dive