Dear Members and Friends:
Hope you are staying well.
With the ongoing conflict in Ukraine and sanctions being issued by the U.S. and other major allies, economic conditions, the supply chain, and trade will likely be adversely affected worldwide in the coming months. This topic will be covered at the end of this update. In the meantime, we have a number of important reports for your consideration.
U.S. Trade Policy
The USTR has issued two reports in the past few weeks. The first, “2022 Trade Policy Agenda & 2021 Annual Report,” is in two parts. There are five major areas of focus in the Trade Policy Agenda:
Advancing a Worker-Centered Trade Policy
Re-aligning the U.S.-China Trade Relationship
Engaging with Key Trading Partners and Multilateral Institutions
Promoting Confidence in Trade Policy through Enforcement
Promoting Equitable, Inclusive, and Durable Trade Policy and Expanding Stakeholder Engagement.
The 2021 Annual Report includes an annex listing trade agreements entered into by the United States since 1984. It also includes an annex on U.S. trade in 2021.
The second USTR report, “Strategic Plan FY 2022 – FY 2026,” lists and details six goals to be achieved in the next five years:
Open Foreign Markets and Combat Unfair Trade
Fully Enforce U.S. Trade Laws, Monitor Compliance with Agreements, and Use All Available Tools to Hold Other Countries Accountable
Develop and Implement Innovative Policies to Advance President’s Trade Agenda
Develop Equitable Trade Policy Through Inclusive Processes
Effectively Communicate the President’s Trade Agenda
Achieve Organizational Excellence as a Model Employer
Each of the goals has detailed strategies and objectives.
The CPTPP
Although not a main focus of the Administration’s trade policy, and not mentioned very often by the USTR, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership has quietly been growing in the past few years. The Economist Intelligence Unit (EIU) has just released a report, “What’s Next for the CPTPP?”, which explores how further growth might be achieved by the addition of new members. Over the 2022-2026 period, EIU assumes that an enlarged CPTPP will include the UK, Ecuador, and South Korea, as well as emerging markets such as Colombia, Indonesia, Thailand, and the Philippines. China and Taiwan may also be in the mix, and much detail is related to the possibilities of their entry. However, regarding the U.S., EIU feels that “bipartisan domestic hostility to trade agreements and some of the CPTPP’s more controversial clauses, such as the investor-state dispute mechanism, will deter the US president, Joe Biden, from re-opening discussions on membership.” A number of possible scenarios over the next five years is presented with percentages for outcomes.
China Phase 1
January marked the final year of the Phase 1 agreement with China. Unfortunately, not much has been accomplished with China over that time. The Petersen Institute for International Economics (PIIE) covers this in a report, “China bought none of the extra $200 billion of US exports in Trump’s trade deal.” The agreement committed China to increases its purchases of certain U.S. goods and services in 2020 and 2021 by at least $200 billion over 2017 levels. China agreed to buy at least $227.9 billion of US exports in 2020 and $274.5 billion in 2021, for a total of $502.4 billion over the two years. The agreement also established legal commitments for a defined set of manufacturing, services, agricultural, and energy products. Ultimately, China bought only 57 percent of the US exports it committed to purchase over 2020–2021. U.S. exports of covered goods and services to China over the two years were $288.8 billion. In the end, tariffs are still in place.
PIIE covers many of the commodity and services areas in the detailed report and concludes by saying that “U.S. policymakers have to seek a new approach.” Some thoughts on new policy areas are covered in the aforementioned USTR “2022 Trade Policy Agenda & 2021 Annual Report” in the section “Re-aligning the U.S.-China Trade Relationship.”
HTS Modifications
The U.S. International Trade Commission (USITC) initiated an investigation of recommended changes to the Harmonized Tariff Schedules (HTS) on October 1, 2019, and published those recommendations in the Federal Register on November 17, 2020. They went into effect on January 27. The USITC report on the modifications (here), “Recommended Modifications to the Harmonized Tariff Schedule, 2021,” lists all of the changes to about 350 products and product group. Importers should review the 2022 HTS amendments to determine how they may impact their product classifications.
Ukraine Crisis and Its Impacts
Regarding the conflict in the Ukraine and the sanctions that have been issued thus far, Fitch Solutions has dedicated their monthly report to the “Global Implications of Russia’s Invasion of Ukraine.” The report covers three areas of interest: growth, inflation, and geopolitics. It lists the sanctions that have been issued by country thus far – but that is as of March 1. Although Fitch estimates that there will be only a modest impact on growth exposure worldwide, there will be impacts on inflation, especially on energy prices. They indicate that the strategic shifts to watch will be European defense policy, European energy policy, and geopolitical relations. We have seen movement in these areas in the past two weeks alone. A detailed list and explanation of sanctions to date is provided by Thompson Hine, “The Latest on the Ukraine-Russia Crisis.”
The Economist Intelligence Unit released a brief report, “Five Ways in Which the War in Ukraine Will Change Business,” looking at the supply chain, commodities, energy, monetary impact, and technology.
Investment in Hidalgo
Recently we reported about the “Memorandum of Understanding Between the United States-Mexico Chamber of Commerce and the Mexican Association of Secretaries of Economic Development.” In this new relationship, the Chamber will be working with each of the States to promote trade and investment, among other goals. Several weeks ago, Ambassador Reyna Torres, Consul General of Mexico in Chicago, held a Virtual Trade Mission with Sergio F. Vargas Téllez, Secretary of Economic Development for the State of Hidalgo, and his staff. Their presentations, “Commercial Mission: North America 2020” and “Hidalgo: The Mexican Spot,” give a complete overview of the reasons so many companies have set up operations there.