Members and Friends:
Hope you are well and staying safe.
This is Part II on our topic. Part I had to do exclusively with our relations with Mexico. This one will cover relations with Canada and China as well as other trade-related subjects.
As always, all of the linked documents below can be found on our website at www.usmcocma.org/resources.
U.S. Relations with Canada
Both the Canadian Government Affairs Institute (CGAI) and the Canada-U.S. Business Association (CUSBA) had webinars in the past two weeks on the state of Canadian trade, COVID-19, and economic forecasts for both countries. Both webinars spent a lot of time on the economy, with one speaker from Export Development Canada at the CGAI webinar presenting data showing that the Canadian economy did not do as badly as was feared and that government stimuli in both countries helped to keep things from getting worse. The economic presentations at CUSBA are attached. Speakers at the CGAI webinar felt that energy (Keystone XL pipeline), “Buy America,” and 232 tariffs would be key issue areas. Some suggested turning the “Buy America” into “Buy North America.”
On February 23, President Biden and Prime Minister Trudeau held a virtual meeting to discuss the relationship between the two countries. The White House issued a statement on the “Roadmap for a Renewed U.S.-Canada Partnership.” There were a number of detailed sections on the following topics: COVID-19; Building Back Better; Accelerating Climate Ambitions; Advancing Diversity and Inclusion; Bolstering Security and Defense; and Building Global Alliances. Neither leader mentioned some of the thornier issues that have come up since Biden took office, such as the president's decision to halt the construction of the Keystone XL pipeline and Biden’s new “Buy America” Executive Order. The U.S. still needs to name a new Ambassador to Canada.
U.S.-China Relations
In President Biden’s first foreign policy speech, on February 4, he said “we’ll also take on directly the challenges posed by our prosperity, security and democratic values by our most serious competitor, China. We’ll confront China’s economic abuses, counter its aggressive course of action to push back on China’s attack on human rights, intellectual property and global governance.” With that as an opening salvo, it will be interesting to see what’s next.
Several documents have a perspective on policy moving forward. UNCTAD’s Investment Trends Monitor of January 24 shows that, for 2020, China saw a slight increase in FDI of 4%. The only other country seeing an increase was India with 13%. The U.S. dropped by 49% mainly due to sharp reductions in greenfield investments and cross-border M&As. Globally, FDI were down 42%.
Brookings and Yale released a report in November, “The Future of U.S. Policy Toward China: Recommendations for the Biden Administration,” a number of independent articles by experts in the field. Although there was not unanimous agreement by the experts, the aim of all was to move the U.S.-China relationship forward in a manner that strengthens America’s security, prosperity, and values. As the President said in his foreign policy address, China should be seen as “a strategic competitor, not an enemy.”
Allianz Research issued a report on January 18, “The World is Moving East, Fast,” indicating that the “World Center of Gravity” has been moving eastward toward Asia since 2002 and, at the rate it is going, China could overtake the U.S. economy by 2030. Part of the recent trend is because China came out of COVID-19 first. Other reasons are the number of free-trade and investment agreements, including the Regional Comprehensive Economic Partnership (RCEP) signed in November and the recent EU-China Comprehensive Agreement on Investment, agreed in principle in December. The U.S. was not involved or included in either, and neither are we in the CPTPP which includes seven countries in Asia. It’s a very comprehensive report.
Our colleagues at the Albright Stonebridge Group have provided us with detailed reports on trade and economics. Their most recent report is “ASG Update on the Chinese Economy.” During this month’s annual National People’s Congress, the Chinese government will release its much anticipated 14th Five Year Plan (FYP) and a new, longer-term industrial development strategy called “Vision 2035,” laying out China’s economic growth and industrial policy objectives for the next five to fifteen years.
USTR
Katherine Tai completed her nomination hearings for USTR before the Senate Finance Committee on February 25. In her opening statement she indicated that she would work to develop and execute a “strategic and coherent plan for holding China accountable” to its commitments, including the Phase One Agreement, and “competing with its state-directed economic model,” while still adhering to American values and recognizing the need to work with China “to address certain global challenges.” She also said that tariffs were “a legitimate tool” in the U.S. trade policy toolbox and seemed to confirm expectations that the Biden administration would not be lifting tariffs imposed by the Trump administration any time soon.
Brexit
An update on Brexit by Thomson Reuters entitled “Brexit’s Impact on Global Trade and How Technology Can Help Multinationals Succeed” was just released. As was reported, under the UK-EU agreement, originating goods will benefit from the liberalized market access so long as they satisfy the new rules of origin requirements. If they are not originating in the UK or EU, tariffs would still be payable. Companies must now calculate the origin of their goods if they trade between the EU and UK, which is a new compliance burden for traders in the region. The number of annual customs declarations is estimated to increase by 215 million — from 55 million per year to 270 million! Trade compliance managers in impacted companies will need to monitor and respond to changes, ensure compliance with new regulations, cope with ongoing uncertainty, and map contingency plans based on the information they have at hand. Based on survey, only 40% of respondents said they have a formal process for addressing the new UK Global Tariff and new UK FTAs. The report goes on to recommend a number of available tools and processes to assist companies in developing an automated global trade management (GTM) system.
Impact of Economic and COVID Factors on Freight
Freightwaves has provided a look at what the forecast for freight might be in 2021 in their recent report. In 2020, the traditional ratio or split between services and goods experienced a sharp mix shift toward goods (and away from services) due to the factors we mentioned above. The traditional 67%/33% split of services/goods blew out to closer to 60/40, with goods accounting for 40 cents of every dollar of consumer spending. Freightwaves expects this split to return closer to its long-run average in the second half of 2021, which will weigh on goods spending (and therefore truckload load volumes and demand). The report explains the reasons for current volatility in capacity and freight cost affecting many areas especially on the West Coast.
Customs and Border Protection have issued an Addendum to USMCA Implementing Instructions on January 21 covering “Phase 2 Implementation – Six Months After Entry Into Force and Onwards (Jan. 1, 2021).”
President Biden has issued several executive orders having to do with Buy America. First, on January 25, the White House issued a statement indicating “President Biden to Sign Executive Order Strengthening Buy American Provisions, Ensuring Future of America is Made in America by All of America’s Workers.” What followed was Executive Order 14005, “Ensuring the Future Is Made in All of America by All of America’s Workers” with all of the details. In the process, it also revoked the “Buy American and Hire American” Executive Order (EO 13788), which President Trump signed on April 18, 2017. The document is also known as the “Made in America” Executive Order. We will have to see how the implementation changes things – especially which L1 and H1B visas are being given to individuals whose skills are required by American companies.