SMC3 examines global trade issues

As SMC³ Jump Start 2017 gets underway in Atlanta this week, three prominent international trade experts will address The Logistics Technology Summit.

What should shippers expect from the new Administration's trade policies in Asia?  Logistics managers may be especially concerned about any pending changes in ASEAN relationships.

Another question being raised by our readers: will a new era of U.S. protectionism mean greater role for China in ASEAN and other Pacific Rim trade agreements?

Dr. Donald Ratajczak, consulting economist Georgia State University, does not feel that protectionism is President Trump's prime objective.

“Rather, the threat of a tariff or a border adjustment tax (he prefers the former) is used to renegotiate trade arrangements,” he says.

For example, when NAFTA was approved, Mexico had a value-added tax (VAT) of 5% and they were expected to not change that rate. Today, the VAT is 16%.  

“He (Trump) would threaten Mexico with a tariff to have them restore the old VAT. I don't know the specific issues in Asia, although he probably would want China to return to their fr ozen currency rate of several years ago – which is not consistent with WTO policy.”

Ratalczak adds that when we are attacking trade relationships, retaliation from the other side should be expected. That would include trade arrangements that exclude the US.  

“In short, this administration wants better deals, but it needs a club…which is protectionism.  Unfortunately, Asian countries may fight back with clubs of their own, including taking the U.S. out of trade agreements. That is the danger of the Trump policy…but not its objective.”

According to Ratalczak, the Trans-Pacific Partnership was partially negotiated to offset the rising influence of China. When both presidential candidates rejected this agreement, China stepped up its negotiations with Asian countries.  

“If we do not quickly renegotiate an agreement similar to TPP in the future, expect China to become more influential in Asian trade,” he concludes.  

Benjamin Hartford, CFA and Senior Research Analyst, Transportation, for Baird, agrees that specifics regarding the new administration’s policies in Asia are unknown.

“But I would expect China to be ready and willing to fill any void in the Asia-Pacific trade region created by any incremental steps taken by the US to reduce its commitment to trade in the region,” he says.

Dr. Walter Kemmsies, Managing Director, Economist and Chief Strategist for JLL Ports Airports and Global Infrastructure, believes the eventual outcome President Trump’s trade policies will be a requirement for a greater amount of domestic content in the goods imported into the U.S.

“It is a rarity to find goods that were produced 100% in any one country,” he says. “This is also the case for U.S. imported goods,” he says. 

He notes that an effort to increase U.S. content in imports from Mexico is a distinct possible outcome with a graduated target percentage increase over a number of years.

“This would displace inputs imported from Asian nations into Mexico,” says Kemmsies. “It could also impact Europe.”

Finally, Kemmsies observes that Europe-Asia trade is more balanced – and since the U.S. runs a deficit with Asia – it is likely that an increase in local content of U.S. imports will displace Europe as well.