The effects of trade disputes with China, Canada, Mexico and Europe have been far reaching, affecting everyone from farmers to manufacturers to potential home buyers.
Now, Miles Hansen, president and CEO of the World Trade Center, Utah, says the United States is on the brink of a full-blown trade war with China.
For 18 months or so, Hansen explained, tariffs placed on Chinese goods coming into the United States resulted in retaliatory tariffs by China in goods being imported from the U.S., mostly focusing on “intermediary goods,” goods that U.S. companies were bringing into the country to use in their own manufacturing process to produce finished goods.
Over the past few months, however, Hansen said the Trump administration is now moving to impose tariffs on “final goods,” complete consumer goods coming from China into the U.S.
“If the (Trump) administration follows through with what it says it’s going to do, by the time we get to the end of the year, there will be tariffs ranging from 10%-30% on ... virtually all products coming from China, in the United States,” Hansen said.
That doesn’t necessarily mean consumers should expect to see prices on goods from places like Walmart, for example, jump up 10%-30%. Hansen explained several groups along the supply chain will likely absorb some of the tariff, or tax on goods, such as Chinese producers, shipping companies, and then retail outlets.
“It’s unlikely that U.S. consumers would notice a real significant cost increase,” Hansen said. “The greatest impact so far is being felt and noticed by huge companies. They’re the ones who have to deal with the uncertainty and try to figure out, ‘How do we manage what we are doing day to day?’”
Several companies in Utah, such as Humless in Lindon, and a majority of clothing companies based in Utah, have been forced to move their manufacturing elsewhere. Hansen said it’s actually been remarkable to see how quickly many companies have adapted, moving their manufacturing from China to other countries, such as Vietnam, Malaysia, Thailand and even Brazil.
“These are all countries that have worked aggressively to draw manufacturing from China into their countries,” Hansen said. “That strengthens the U.S. hand in negotiations.”
Unfortunately, one sector that hasn’t been able to nimbly adapt to retaliatory tariffs is agriculture.
“(China imports) a tremendous amount of U.S. Food and Agriculture. So they’ve imposed tariffs on those products, or said they’re going to stop buying the products completely,” Hansen said. China, he said, used to buy a lot of soybeans and pork specifically from U.S. farmers.
Here in Utah, it may not seem like much of an issue because there aren’t a lot of soybean farmers — but, Hansen said, in speaking with the Utah Farm Bureau, there are a lot of corn farmers. And as more U.S. farmers turn to corn because they are no longer selling soybeans, Utah farmers take a hit.
“There’s a lot of collateral damage in this trade dispute ... small businesses, smaller farmers ... are incurring significant costs as part of this trade dispute,” Hansen said.
While there is certainly grounds for the trade dispute with China, Hansen clarified — the country has not upheld to commitments made by joining the World Trade Organization, including systematically stealing intellectual property, Hansen said. Although there is recognition among both Democrats and Republicans, and support on the overall objectives, the Trump administration’s process has raised a lot of concerns.
One way Hansen believes the trade dispute with China could have been handled more effectively, is if the Trump administration wasn’t simultaneously renegotiating the North American Free Trade Agreement and trying to pursue a trade policy with the E.U.
“At the same time that we are going after China, we have been very much going after an aggressive way, Canada, Mexico, and the European Union, even though Canada, Mexico and the E.U. all have very similar concerns with China that we do,” Hansen said.
Hansen said he’s one of many who believes things could have gone differently if the U.S. had worked to update NAFTA with Canada and Mexico, coming to an agreement, and then together as partners and allies taken a collaborative approach towards China.
“There’s a lot of legitimacy for people who support the objectives of the policy with having some serious concerns about how the policy has been pursued,” Hansen said.
Things with the E.U. have been sort of put on the back burner, but there is good news on the U.S., Canada and Mexico front: a “significant update” to NAFTA, which was first negotiated in 1994, called the U.S.-Mexico-Canada agreement, or the USMCA.
One of the first major updates that needed to be made had to do with e-commerce. After all, Hansen said, the internet barely existed 25 years ago, so NAFTA doesn’t adequately account for e-commerce, digital trade and software, which make up a large part of the U.S. economy and the economies of Canada and Mexico.
“So the new agreement addresses all of those issues and creates a good framework for growing and expanding trade and e-commerce and digital trade between Canada, the U.S. and Mexico,” Hansen said.
In addition to being updated to address e-commerce and digital trade, the USMCA provides some new markets for agricultural producers, particularly dairy farmers, to be able to sell their goods in Canada with no tariffs. Some other important updates include a labor chapter which protects workers against discrimination and harassment, and an environment chapter introducing new commitment to address global challenges such as illegal fishing, depletion of fish stocks, marine pollution and air quality.
The agreement also creates additional incentives to build and source goods and materials in North America, such as in the auto industry. New auto rules of origin will require more North American content in vehicles, and also will require a minimum wage of around $16 for the laborers creating those parts. Out of Utah’s annual $1.8 billion in exports to Canada, $79 million worth is made up of motor vehicle parts.
Stephane Lessard, the Consul General of Canada in Denver covering much of the western region including Utah, said this particular clause will improve the economy in both Canada and the U.S. by promoting trade and creating jobs.
One important thing that has remained the same is, where NAFTA eliminated over 98% of tariffs in North America, creating one of the largest free trade zones in the world, the USMCA has preserved that with no new tariffs or non-tariff barriers.
“We have made this continent prosperous, and we’ve done it together,” Lessard said. “Under the free trade agreements, we really increased our prosperity and our economies have become deeply integrated.”
Now, it’s just a matter of getting the USMCA approved in Congress before 2020 presidential campaigns begin in earnest. Hansen fears that if it is not approved, the USMCA will just become a political talking point, despite the bipartisan support. On a happy note, The New York Times recently reported that the impeachment inquiry, which would seem to have slowed all legislative progression, may actually propel the USMCA into approval.
“I think that Congress’ continued progress on this issue sends a strong message about the importance of updating NAFTA by ratifying USMCA. Despite bitter political fights over the impeachment inquiry and the presidential election, Congressional leaders from both parties seem to recognize that ratifying USMCA is something that is so clearly in U.S. interests that they must actively work together to create a path for its ratification,” Hansen said. “Time is of the essence; the path to ratification that exists now will become decidedly more narrow the longer the impeachment inquiry drags on and the closer we get to the presidential election cycle.”