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A new wind is blowing through American trade policies. America First. Is this another version of the protectionist wind we have seen in other parts of the world or something more complicated, and what will this new policy mean for global trade and for European companies trading with the United States? Will there be negative effects for the United States and for Europe, or positive ones? Regardless of the answers to these questions, it is time to start preparing for both scenarios.

 

US trade policies are changing, but how far will they reach?

Every day European media report on news from the Trump administration. Many of the early initiatives and statements have been addressing the American trade policies as a part of the overarching concept of the new administration, ‘Making America great again’. President Trump has in his campaign – and now in office – constantly repeated that he will use trade policies to protect the American home market and as an engine to create American jobs on home soil. While protectionism around the world is growing, these statements have naturally worried many countries and companies trading with the United States, also in Europe. European countries are large trading partners with the United States, with Germany being the fifth largest trading partner and countries like the UK (7), France (8), Italy (11), the Netherlands (13) and Belgium (17) high on the list. Also for the Nordic countries and companies, the US is a huge trade market and there are almost 60 countries around the world for which the United States is the largest trading partner.

While earlier comments made by Mr. Trump as president-elect were concentrated on criticism of regional and multilateral trade agreements like the North American Free-Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP), there have lately been statements showing that this is a larger and more far-reaching strategy than previously noted. The US has already left the TPP negotiations due to President Trump’s first executive order. This is not good news for the future of and continued dialogue on the Transatlantic Trade and Investment Partnership, TTIP. So there are certainly some concerns about how this will impact the 20 countries that have free trade with the United States today, and those that were hoping to have it tomorrow.

Lately the new president has threatened tariffs of 45% on Chinese products, and there are other examples going in the same direction. The executive order to build the Southern Wall will need a budget of approximately USD 12-38 billion, which according to a proposal from the new administration is to be funded by a 20% tariff imposed on imports from Mexico.

New trade policies a cornerstone in the new overall financial policy

A reasonable analysis of these statements and initiatives is that the change in trade policies constitutes a core cornerstone of the new overall financial policy of the Trump administration. Colleagues in United States agencies have witnessed that they are already preparing for new measures in line with the statements and instructions from the White House. The ongoing debate on more restrictive rules on immigration, after the Executive Presidential Order on limiting immigration and non-immigration visas, may have an unwanted negative effect on day-to-day business. This could become a problem also for European companies since countries that have previously embarked on this road have experienced challenges where legitimate business people have had difficulties in travelling for negotiations and contract discussions.

President Trump in a strong position

Many political commentators around the world and in the United States have said that the American political system of checks and balances will handle the more radical proposals from the new president, but in relation to the trade area those checks and balances are weak. According to American expertise, the president in fact has the power to carry out his own trade policies to a large extent, at least in the short term.

Consequences for European companies

So how likely will potential new American trade policies impact European trade to the United States? We have seen UK government comments from Foreign Secretary Boris Johnson that the two nations will start negotiating a new bilateral trade agreement soon, and that the UK will be “first in line”. How fast that negotiation will result in a new trade agreement is certainly written in the stars. What such an agreement would mean for the European Union and the rest of Europe is impossible to tell. What we do know is that trade negotiations are complicated and usually take years to conclude.

Will there be direct consequences for European companies and their business? It will likely have an impact since the international supply chain today is a complicated interconnected system where changes in trade patterns, international trade hubs, e-commerce and the increasing use of global value chains, to name but a few examples, play a more important role for the world economy.

The only thing that is 100% certain is that we are moving into very uncertain times in relation to trade with the United States. China has already taken the initiative to declare that they will be the new leader of free trade and trade facilitation talks if the US follows through with its new policies, although this will only make the situation even more delicate. If we add on and take into account how huge trading nations like Canada and Mexico will act and react if the NAFTA agreement comes to an end, or if renegotiations are initiated, the complexity increases even further. However, many experts think that it is likely that these nations in such a scenario instead will try to increase their trade relations and exchange of goods with Asia and Europe by way of compensation.

Security another issue that impacts international trade

It is also worth noting that the security agenda is once again coming to the fore. The uncertainties of our world, the increased terrorist threat, growth of organised crime syndicates and recent security incidents – in combination with growing world trade over time – will underline the need for a new supply chain security paradigm to be implemented in the near future.

I am a member of the International Advisory Board of the International Summit on Borders, an American think-tank initiative that will arrange a global conference in Washington DC in June this year with the aim of discussing future security in the movement of people and goods. I will moderate one of the panels of the Summit, a panel related to Cargo Security. After this conference we will certainly know more about the trends, the ideas and where the security initiative is going for the years to come.

Monitor developments and evaluate different possibilities

In summary, there are a number of indications that trade with the United States is likely to change and grow more complicated in the years to come. The current situation raises more questions than it answers, such as: Will the new line of policy for foreign trade be enforced? Most experts seems to think so. Will the policy work as intended? From an American perspective it may do so in the short term, but is likely in more danger of failing in a longer perspective. Will the new policies also impact European countries? If this is the way forward, and President Trump certainly has kept his promises on what to do first so far, then it is likely to have an impact and consequences for all of us. Is it a problem or an opportunity? Will the United States become isolated by protectionism and gradually lose its role as a global trade leader and economy in an increasingly globalised world? Is this new policy making America great again, and will America First deliver or is there a risk that America will end up last? We will have to wait and see.

One thing is sure, every company working with export to and import from the United States will have to keep a close eye on developments over the next 6-12 months. It is also wise to review the strategies on what to do if the United States becomes a more challenging trading partner for the next four years.

 

Article written by Dr. Lars Karlsson, General Manager KGH Global Consulting.

We at KGH, as trade and customs experts, have decided to be on the front line of news and knowledge about United States trade policies for the next four years. We have initiated and will implement a US Desk under our Global Reach concept, whereby our experts will constantly monitor American trade policy developments with the aim of supporting all our customers and clients. In addition we have strengthened our partner network in the United States to give our clients the best possible service and advice.

If you have any questions, if you want to know more or if you would like to talk to our experts – please don’t hesitate to contact us.

Catharina Olofsson, Consulting Director
catharina.olofsson@kghcustoms.com

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