In this episode, the Trade Guys preview a highly anticipated meeting between President Trump and China’s Xi Jinping at the upcoming G20 summit in Argentina. The crew also discusses General Motors and the changing landscape for auto demand in the U.S.
What We’re Reading
“USTR says China has failed to alter ‘unfair, unreasonable’ trade practices”
“The Trump administration on Tuesday said that China has failed to alter its ‘unfair’ practices at the heart of the U.S.-China trade conflict, adding to tensions ahead of a high-stakes meeting later this month between U.S. President Donald Trump and Chinese President Xi Jinping.”
“The findings were issued in an update of the U.S. Trade Representative’s ‘Section 301’ investigation into China’s intellectual property and technology transfer policies, which sparked U.S. tariffs on $50 billion worth of Chinese goods that later ballooned to $250 billion.”
Why it matters: Days before President Trump and Chinese President Xi Jinping meet in Buenos Aires at the G20, the United States accused China of making no progress on resolving trade barriers that led to the imposition of U.S. tariffs on Chinese goods. The Trump administration’s accusations could throw cold water on the prospect for a breakthrough on trade when President Trump and President Xi meet.
Key questions: Does the Trump administration’s updated report on Chinese trade practices make a trade truce less likely or will President Trump look to make a deal to buoy the stock market and potentially score some political points? What other factors could impact talks between President Trump and President Xi in Buenos Aires?
“A Winter-Coat Heavyweight Gives Trump’s Trade War the Cold Shoulder”
“Columbia Sportswear has spent years designing ski jackets and hiking boots to withstand the elements: wind, rain, snow and, increasingly, tariffs.”
“Located on a sprawling campus adorned with hanging canoes, the 80-year-old retailer has long protected its outdoor gear from the whims of Washington by engaging in what the company calls ‘tariff engineering’ — adjusting its products to lessen import taxes on materials from outside the United States like rubber soles, zippers and waterproof nylon.”
“But now Columbia worries that its approach is under threat from a president whose trade strategy leaves little room for American companies that make and sell products globally.”
Why it matters: Companies that rely on global supply chains to affordably and reliably manufacture and sell their products in the U.S. and around the world are being thrown through a loop by President Trump’s tariffs. The approach of “tariff engineering” to dodge duties is at risk due to the administration’s trade policy. Some companies, like Columbia, see no upside in shifting manufacturing back to the United States to dodge potential tariffs. Instead, they scramble to keep pace with the administration’s trade policy. In the event that additional tariffs are imposed on China, increased costs may have to be passed on to consumers.
Key questions: What is “tariff engineering?” How do companies like Columbia avoid certain tariffs by opting not to make a jacket waterproof or filling it with more down? Is “tariff engineering” good for the United States or should tariffs be more uniform across similar products? How does the trade war impact “tariff engineering?”
“WTO Starts U.S. Tariffs Probe, Crossing Trump’s Red Line”
“The World Trade Organization agreed Wednesday to investigate the legality of U.S. tariffs on steel and aluminum imports based on national security concerns, a decision the U.S. says could undermine the legitimacy of the Geneva-based trade body.”
“Members including the European Union and China asked the WTO to examine the U.S. levies, which they say don’t bolster security but further U.S. economic interests.”
“Any review of America’s essential security interests “would undermine the legitimacy of the WTO’s dispute settlement system and even the viability of the WTO as a whole,” the American delegation said at a Wednesday meeting of the WTO dispute settlement body, according to prepared remarks seen by Bloomberg.”
“The WTO has long avoided this politically fraught confrontation. If the trade organization decides in favor of the U.S., the decision could entice the body’s 164 members to use the national security justification to impose protectionist measures for economic gain; if it rules against the U.S., President Donald Trump could decide to leave the WTO entirely.”
Why it matters: The World Trade Organization will officially review the Trump administration’s steel and aluminum tariffs imposed in the name of national security, a test of their international legitimacy with the potential for massive ramifications. If the WTO determines that the tariffs are justified under the organization’s national security exception, that could open the floodgates for other countries to impose their own trade barriers in the name of national security. If the WTO rules that the tariffs are not justified, the United States could opt to reject the ruling, arguing that no multilateral institution can determine what is necessary to protect U.S. national security, dealing a major blow to the WTO’s credibility.
Key questions: What exactly is the WTO reviewing here? How does the WTO national security exception work? What is the United States claiming and what are the complainants arguing? How can the WTO or another country decide what is necessary to protect U.S. national security? Is there any precedent for a national security case at the WTO?