In this episode, Trade Guy Scott reports back from the Windy City and fills Bill and Jack Caporal (filling in for Andrew)in on the USMCA. They also discuss the restart of U.S.-China talks, and Dr. Sabine Weyand’s discussion earlier this week at CSIS headquarters.
What We’re Reading
“Lighthizer Charms Congress, but Struggles to Sell USMCA”
“When he isn’t trying to forge an elusive trade deal with China, U.S. Trade Representative Robert Lighthizer can often be found working Capitol Hill, schmoozing with lawmakers on that other trade deal, the one with Canada and Mexico.”
“Rep. Stephanie Murphy of Florida is one of the many Democrats Mr. Lighthizer has impressed with his attention to their concerns and the sheer amount of time he is devoting to win support for the U.S.-Mexico-Canada Agreement, or USMCA.”
“When Mr. Lighthizer sees her approaching, Ms. Murphy said, he already knows that she plans to hound him about the seasonal strawberry and blueberry farmers in her district who want to stop Mexico from dumping cheap produce into the U.S.”
…”Despite winning friends in Congress, Mr. Lighthizer is struggling to overcome resistance to ratifying the deal struck by President Trump last year.”
Why it matters: Despite months of meetings with lawmakers, Lighthizer and the Trump administration are not making much progress in convincing Democratic lawmakers to back USMCA. On top of meetings with Lighthizer, group of House Democrats recently met with Mexican President Andres Manual Lopez Obrador (AMLO) to discuss USMCA and labor reforms in Mexico. As 2020 nears and no concrete progress is made on dealing with Democrats’ demands, the fate of USMCA is unclear.
Key questions: Democrats like Lighthizer but still don’t like USMCA, what will it take for them to get to yes? Why hasn’t concrete progress been made yet? Are Democrats waiting out the administration or are they really trying to get to yes?
“US trade war negotiators likely to visit China next week for first face-to-face talk since G20, source says”
“US negotiators led by trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are likely to fly to China next week for the first face-to-face talks since President Xi Jinping and US counterpart Donald Trump agreed to a trade war ceasefire at the end of June, according to a source who is familiar with the matter.”
“The initial arrangements for the meeting in Beijing, according to the source who declined to be identified, came after the United States announced that it would offer exemptions to 110 Chinese products, including medical equipment and key electronic components, from import tariffs. In a goodwill gesture of their own, China also said that several companies would buy American agricultural products having already applied for exemptions from the tariffs imposed by Beijing.”
“An in-person meeting between Lighthizer, Mnuchin and Vice-Premier Liu He, who leads China’s negotiation team, would be seen as a positive step towards reducing trade tensions between the world’s two largest economies, although talks to reach a deal to end the year-long trade war are still expected to take a significant amount of time.”
Why it matters: U.S.-China talks have been in limbo since Trump and Xi met last month in a meeting that resulted in a truce with unclear agreements on Huawei and farm purchases. Resumption of farm purchases from China may improve the environment for negotiations, but it does not change the divide the United States and China have over fundamental issues.
Key questions: Will anything that’s happened since the Trump-Xi meeting last month change the negotiating dynamic? Why is China resuming farm purchases now? Will agricultural purchases change the negotiating dynamics in a meaningful way? Will the United States respond to the purchases with looser restrictions on Huawei?
“Singapore’s economic downturn continues as US-China trade war wreaks havoc on Asia export hubs”
“Singapore’s exports plunged to a six-year low in June, the latest in a series of brutal indicators showing China’s slowdown and the trade war with the United States are wreaking havoc on the economies of Asia’s trade hubs.”
“The city state’s economy is considered a bellwether for the region as it is a transshipment hub, meaning that the goods that pass through its ports are generally bound for other final destinations. So if trade in Singapore is weak, it usually points to slowing demand elsewhere – often China, which reported its lowest quarterly economic growth on record on Monday.”
“Singapore’s total non-oil exports fell 17.3 per cent in June, following a 16.3 per cent decline in May, driven by a 31.9 per cent slump in electronics exports last month. Imports fell by 4.8 per cent, while total trade fell by 7.2 per cent from a year earlier. Singapore is more dependent on trade than any other nation apart from Luxembourg, according to the World Bank, an indicator of the severity of the decline.”
Why it matters: Economic warning lights flashing from Singapore signal danger ahead for other economies in Asia. Singapore exports are at a six-year low, GDP shrank 3.4 percent year over year to the slowest growth rate in a decade, and chemical exports to China (an indicator of China’s manufacturing base) declined by 50.5 percent in June. Singapore a major transit hub for goods and its economy is reliant on trade. The slowdown shown in the most recent economic data for Singapore suggests that economies in Asia are beginning to feel a crunch from the trade war.
Key questions: What does the latest economic data from Singapore reveal about how the trade war has impacted economies in Asia? Why did it take so long for economies in Asia to experience negative fallout from the trade war? What can Singapore and other regional economies do to mitigate the fallout?
“EU official calls for end to ‘growth-slowing series of skirmishes’ with the U.S.”
“The European Union would be forced to retaliate if President Donald Trump imposes his long-threatened tariffs on European automotive exports, leading to a downward ‘spiral’ that would hurt both sides, a top EU trade official said today.”
“Speaking at an event hosted by the Center for Strategic and International Studies in Washington, Sabine Weyand, the European Commission’s second-highest ranking trade official, warned that ‘getting into the spiral of measures and countermeasures is not a good way to go about international trade, and it only creates losers on all sides.’”
“’Should the U.S. go down the road of imposing tariffs,’ Weyand added, ‘we would be forced to do the same. … So it’s a lose-lose scenario.’”
Why it matters: The EU is stuck between a rock and hard place when it comes to trade with the United States. The EU knows tit for tat tariff escalation is akin to the U.S. and EU shooting themselves in their own foot but that not responding to U.S. tariffs is politically not an option.
Key questions: What can the EU do to avoid getting caught in the “spiral of measures and countermeasures” with the United States? CSIS hosted Weyand, what else did she reveal about the state of affairs between the U.S. and EU?
“Europe Plans to Use the U.S. Election to Beat Trump’s Trade War”
“The European Union is legendary for moving slowly – and that may be just the right pace for confronting President Donald Trump’s trade wars.”
“While the daunting threat of U.S. tariffs on Europe’s auto industry and other measures is very much alive, one line of thinking in the EU is that Trump will be less trigger-happy the closer he gets to the 2020 election. The logic is that he’d risk a voter backlash if the EU retaliated by targeting U.S. exports, notably farm products.”
“Right now, the awkward EU-U.S. truce is held together by the prospect of a big trade accord. To preserve the status quo, the proposal would slow-walk the negotiations, pushing them deeper into the campaign on the expectation that the Trump administration will be too focused on his re-election to escalate tensions with Europe, two European government officials said.”
Why it matters: The European Union may be intentionally slow walking the United States in trade talks in a bid to wait out the administration. No discernable progress has been in the bilateral negotiations and the threat of auto tariffs has not come to fruition, which may lead EU officials to believe that the status quo is the safest bet for them.
Key questions: Is this reported diagnosis by the EU correct? Is it safer to wait out the administration (assuming it does not win a second term) than to try and negotiate ahead of the election? Is Trump less likely to take trade action against the EU as the election nears?