Not surprisingly, given the challenging issues that were on our Trade Watch 2018, several have come over into 2019, unresolved and in some cases even more complex. Here are the issues we will be following in Trade Watch 2019.
NAFTA Re-negotiated: NAFTA has been re-negotiated and the US Mexico Canada Agreement (USMCA) concluded. So, that’s one issue resolved – except that the USMCA left in place the US tariffs on steel and aluminum imports. These tariffs and the retaliatory action by Canada and Mexico cover billions of dollars’ worth of each other’s products. With these tariffs still in place, a significant portion of trade between the three countries is now impeded by the tariff barriers the agreement is supposed to cover. In addition, the USMCA still needs to be ratified but faces some challenges in this process. Will Canada’s Parliament ratify the treaty despite the concerns over the ongoing tariff war? In the US Congress, ratification requires the support of the Democrats now in charge of the House, historically more hostile to trade agreements, and currently locked into the showdown over Trump’s demand for a border wall. Trump used the negotiations to win higher wages for automobile workers but has been blindsided by the plans of General Motors to close eight plants, resulting in job losses for 6,700 American and Canadian factory workers. Nevertheless, to force the issue, Trump has indicated his intention to withdraw from NAFTA to force a vote on USMCA. Can he do that? We will follow these issues and keep you posted in Trade Watch 2019.
Brexit: On January 15, 2019, the UK House of Commons voted to reject the Brexit deal negotiated by the Theresa May government. This vote increases the chances of a no-deal Brexit, causing great concern and uncertainty. A week earlier, more than 200 MPs from different political parties had signed a letter to the Prime Minister urging her to rule out a no-deal Brexit. At the other end of the spectrum are those who, like former Foreign Secretary Boris Johnson, believe that the option of leaving the EU with no deal is “closest to what people actually voted for” in the 2016 EU referendum. So what next? Will the UK leave the EU on March 29th, 2019 with no EU deal? Will it be Plan B, the Norway Plus option, which even Norway says is not optimal for a former EU member? Could an unlikely coalition of Remainders and extreme Brexiters actually lead to a new referendum on Brexit? It is questionable whether the EU will be willing to renegotiate the deal. And who will lead the UK government through this process? No one knows at this point. We will continue to keep you updated through 2019.
US-China trade relations. Beginning with the tariffs imposed on steel and aluminum imports in March 2018, US-China trade tensions have escalated to the point where tariffs now impact over US $350 billion worth of trade between the two countries. The escalation has been halted by the agreement reached on December 1, 2018 to a 90-day truce during which the parties will negotiate on the major sticking points. US concerns are the requirement that its companies share their technology with domestic partners in China (forced technology transfers), apparent theft of US intellectual property by Chinese companies, non-tariff barriers to entry of US products into China, and cyber intrusions. China wants the tariffs lifted. Though it has the power to continue to retaliate and remains a strong economy it is believed that China is less able to weather the negative impacts of the tariff war. Will the US-China negotiations produce results? Will US Congress act to mitigate the more damaging impact of the tariffs? We promise to get back to you on these issues.
Then there are the deeper questions surrounding reform of the Investor-State Dispute Settlement (ISDS) mechanisms and of the overall multilateral trading system. We will let you know how things progress in our Trade Watch 2019 posts.
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