On the 6th of November it’s that time again: US citizens are heading to the voting booth. The mid-term elections are just around the corner, and while Americans won’t be voting for their president, they will be voting on the House of Representatives and a third of the Senate. As always with US elections, this event is certain to make waves in the media. Furthermore, this is an opportunity to draw certain conclusions about those who are currently in office. As early as his inauguration, Trump has been a polarising president and a cause of turmoil on the international market with his ‘America First’ strategy.
Consquently we are faced with the following interesting questions: What is the situation after two years of Trump? Have things in USA improved at market and trade level as intended by the ‘America First’ strategy? Here we can see that the position of the USA is directly linked to the international market.
The key term is: cross-border trade. As such, we’re taking the current debate as an opportunity to give you an overview of the aspects presented below, which have all felt concrete repurcussions from President Trump’s international trade policies.
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The Trumpian agenda
Even before officially entering into office, Donald Trump had a considerable influence on trends in international trade thanks to his media-savvy statements. This has in turn significantly influenced the rulebook for the supply chains and contractual terms of international businesses.
Here are a few examples of concrete actions initiated by President Trump:
- Withdrawal of the USA from the Trans-Pacific Partnership
- Threats to withdraw the USA from the WTO (World Trade Organisation) should terms not be renegotiated in favour of the USA
- Calls for renegotiation or potential withdrawal from NAFTA (North American Free Trade Agreement)
- Promising higher taxes and tariffs on Mexican and Chinese products
- Complicating the legal obstacles faced by US businesses seeking to expand into Cuba
In addition, the majority of institutions in the USA are now favouring protectionism over openness on political and economic issues. Whether it’s the The Office of the U.S. Trade Representative, the US Department of Commerce or the CFIUS (Committee on Foreign Investments in the US), all of these institutes are trending towards conformity with the president’s political approach. Nonetheless, it should be noted that the majority of the above actions are initiatives which have so far only been partially implemented, if at all. For example, the USA has so far neither withdrawn from NAFTA nor the WTO agreement.
TextMaster is here to give you an overview of the most prominent cases in the ‘Trumpian’ cross-border debate.
Cross-border trade – who has been hit hardest?
China – International posturing with economic consequences
China is one of the nations putting up the biggest fight against the approach taken by the US government, and more often than not we see that the gloves are coming off. Around a year ago, not long after his arrival in office, President Trump kicked off a trade war with China. This decision was motivated by an imbalance in the imports and exports of the two countries.
Given the low production costs in China, more low-priced imports from China were being brought into the USA than were being exported from USA to China. Consequently the US economy found itself with a domestic production and GDP deficit, as well as falling wages, in direct contrast to the aims of Trump‘s political agenda. According to a report by the Daily Signal, up to 450,000 American jobs may have been lost in 2017 due to the trade imbalance.
The solution? It can at least be said that Trump’s government came up with a strategy of their own. Numerous import restrictions and punitive tariffs were imposed in order to counter this trend. In his own words, Trump is ready to “tax everything Americans buy from China”. The aim here is to reduce the incentive for American consumers to choose Chinese products over American alternatives.
To give some indication of the scale of this decision, it is believed that in 2017 a total of up $360 billion in goods were faced with higher tax rates. It is understandable that Beijing had to react to this offensive economic behaviour. Following the USA’s example, China then implemented tax increases on approximately $60 billion worth of goods. This figure represents the monetary value of roughly half of all US imports. This was ultimately reflected in a relative tax increase of 5% to 25%. Agricultural goods such as soybeans, rice, meat and fish products were the most affected, though there was also an impact on tobacco and heavy goods vehicles. So far no easing of the situation is in sight.
As a result, the extent of the negative consequences for cross-border trade between the two countries cannot yet be fully understood.
Europe – Who will hold out longest?
The desire to balance the trade deficit in the USA can also be observed in cross-border trade between Europe and the United States. The USA has also chosen a strategy focusing on taxes and tariffs here, aiming to shift the balance of imports and exports to the USA’s advantage. The products of heavy industry in particular have been affected, such as steel and aluminium.
At the same time, the USA has provided European businesses with a wealth of reasons to invest in the USA. Aside from the lowering of income tax, the taxation of corporate earnings has been lowered and 100% deductibility for asset investments has been established. This was strongly criticised by France when it came into force, as France has a relatively high rate of taxation for businesses.
Europe, meanwhile, has reacted with punitive tariffs and sanctions of its own against US imports. Goods such as steel, corn, jeans and whiskey were targeted in particular. The additional tariffs placed upon these goods since the 22nd of June stand at a hefty 25%. In absolute figures, imports from the USA with an annual value of up to €28 billion have been faced with new tariffs.
After discussions on transatlantic free trade agreements such as TTIP while President Obama was in office, it must be recognised that there has clearly been a significant cooling of the trade relationship between Europe and the USA.
Canada – Neighbourhood quarrels over NAFTA
As an immediate neighbour to the United States, Canada has also keenly felt the impact of Trump’s economic policy. Particularly when it comes to NAFTA.
Laurie Tannous, Special Advisor of the Cross-Border Institute at Windsor University, is convinced that the direction taken by the US president is short-sighted. Not least as a result of NAFTA itself, the supply chain and movements of products between the two countries are far too tightly interwoven for any shifting of the balance to negatively affect only one party. This is particularly true for the automotive sector, which affects up to 120,000 Canadian jobs. “There are no winners in a trade war,” says Tannous.
A further point of contention was the Canadian programme of protective tariffs for milk and dairy products which had continued to be a thorn in the side of the USA. However, Canada had already promised concessions here in order to give US farmers better market access.
A supplementary agreement between the NAFTA members (USA, Canada and Mexico) is to be signed on the 30th of November. Many details of this agreement remain unknown, however. Any future developments in the ultimate agreement on cross-border relationships remain to be seen.
What can we expect moving forward?
So what next? In truth it’s very difficult to say. Bruce Heyman, the previous US ambassador in Canada under President Obama, believes that Trump‘s approach is primarily shaped by his past in the New York construction industry. The sometimes dubious business practices and heavy-handed behaviour that prevailed there have now been applied directly to his political approach. Although Trump has resolutely followed through on his election promises, he nevertheless remains an uncontrollable variable on account of his numerous impulsive reactions.
Nonetheless, given the present observations, it is relatively clear to see that cross-border relationships with the USA have become more complicated on the whole. Even in the USA itself, there does not yet seem to be any noticeable lasting improvement in the economic situation. The major questions which now emerge with regard to the economic and political future of the USA and its cross-border partners can be summed up as follows:
- If the open investment and trade policies of the past were one of the key factors for growth, what is the effect of a contrasting policy on economic growth?
- If international trade and investment practices become less transparent and less predictable due to political decision-making, will this be reflected in stagnating or regressive cross-border trends?
- Is it possible to reconcile far-reaching restrictions on investment, which have often been imposed at very short notice and sometimes arbitrarily, with a rules-based and transparent trading system forming the foundation for cross-border trade?
Finding the answers to these and related questions is a challenge faced by all stakeholders in international trade. As such, this is a topic that will likely go far beyond the ‘Trump debate’.
