Trade War? Maybe…

Sadie Keljikian, Top Billion Finance

In the latest round of speculation about Donald Trump’s upcoming presidency, several sources are debating the likelihood of a future trade war with China.

Wall Street has been generally pleased with Trump’s campaign promises to cut taxes, decrease regulation and increase infrastructure spending. However, some are concerned that protectionist policies like tariff hikes could start a trade war if China and Mexico should choose to retaliate.

The promise of bringing manufacturing jobs back to the US and decreasing imports from China and Mexico was a significant point in Trump’s campaign platform. The plan, as it’s been described, is to raise tariffs on US-bound exports significantly, withdraw from NAFTA and the TPP, impose a border adjustment tax on American importers, and publicly accuse China of currency manipulation. The effects of these changes are the subject of significant debate on Wall Street and among international traders in general. Some fear that should there be a trade war, the US would be ill-equipped in comparison with China.

James Wang, a professor at City University of Hong Kong, writes a monthly commentary for the Pine River China Fund. In his most recent installment, he wrote that “decision-makers in a democracy face difficulties coordinating a relief effort and must eventually face a political backlash from impacted domestic producers. On this basis, the Chinese may have more runway to play the long game in a trade war.” He went on to say that China’s government is better positioned to use state resources to soften the blow to the export industry.

Despite speculation, changes to US tariffs and tradepexels-photo-70152 agreements would take time to enact and, according to Forbes contributor Michael Boyd, the likelihood of a trade war is extremely slim. Why the confidence? Because the US imports more than half a trillion dollars in goods from China annually, equal to one fifth of China’s global export total. This means that the US is extremely important to China’s economy and, should the US take a decisive stance on trade going forward, it seems unlikely that the issue will escalate.  Given the circumstances, odds are that the two countries will negotiate new terms and have a stronger business relationship in the future rather than engage in costly posturing on trade policies.

Again, it is impossible to know how or if any of these plans will be enacted and, even if they are, there is no guaranteed result. There is certainly a chance of a trade war, should the president-elect go forward with his plans for trade reform. However, it is just as likely that China’s provocative trade practices will diminish amidst concerns of retaliation and relations between the two countries will improve.

Predicting the future is an excellent way to make business owners and importers nervous, but ultimately, preparing for all possible outcomes is the only way to confront the uncertainty. In broad terms, importers should reinforce potential weaknesses in their supply chain by exploring alternate sourcing options both domestically and abroad.

Despite the fact that producing domestically is notoriously more expensive than overseas, distributors who do the majority of their production overseas, particularly in China, would be wise to make contingency arrangements to bring some portion of their production to the US, or prepare to expand production in existing domestic manufacturing facilities. Although purchasing raw materials and inventory in bulk carries a potential risk of overstock and obsolescence, budgeting for a little extra stock on hand may provide a good hedge to buffer the impact of shocks to foreign supply chains. The advantage of having extra stock for immediate delivery offsets some of the potential risks associated with carrying inventory.

Taking reasonable precautions without breaking the bank may actually offer an unexpected boon to importers willing to adjust their operations and finances to face these risks head on. In short, under a Trump presidency, we are likely to see changes to the trade landscape, most notably between China and the US. As in all cases of uncertainty, the best we can do is prepare and not fall into panic over speculation.

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ICS Contemplates Post-Brexit Trade Environment

Sadie Keljikian, Top Billion Finance
The International Chamber of Shipping, or ICS, is predicting how Brexit might impact shipping.

The United Kingdom’s recent vote to leave the European Union will undoubtedly change international relations in Europe and elsewhere, but ICS secretary general Peter Hinchcliffe has said that the changes could benefit the world market. “The UK, in my experience, has tended to be quite brave in the IMO [International Maritime Organization]. Sometimes it has been prepared to argue against the EU for the greater good of the industry and maritime trade so therefore it’s interesting to think about how that role might change when the UK is released from the European restraints.”

He went on to note that leaving the EU will force the UK to focus more energy on maritime trade — an industry the island nation has a long standing and illustrious history, due to fewer trade opportunities in surrounding countries post-Brexit. Hinchcliffe claims that the UK’s historical success in the maritime and international trade industry suggests that the real loss in the equation may end up being Europe’s lack of participation in British trade.

The EU stands to lose the most in this equation, according to Hinchcliffe, who says that the EU will suffer with the United Kingdom no longer “inside the tent.” He predicts that the UK will do as best they can to comply with international regulations and even EU regulations, as many of them are consistent with IMO.

Regardless of the implications, Hinchcliffe says that he is “fairly surprised by the…instability that one country has been able to cause by a single, albeit momentous decision.” The UK and all its allies and trade partners will have to manage instability and changing policies once it begins the formal process of withdrawing from EU, so the ultimate effects are quite difficult to predict.

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US Customs Roundup

ACE Mandatory Usage Effective July 23rd
US Customs and Border Protection (CBP) announced that effective July 23rd, 2016 Automated Commercial Environment (ACE) will be the sole CBP authorized EDI system for the electronic entry and entry summary filings for all entry types.

All filers and all electronic filings must be formatted for submission in ACE and will no longer be accepted in Automated Commercial System (ACS).

For more details including Participating Government Agencies (PGA) timeline, please click here.

Drawback Claims and Document Requirements for Exportations
On August 7th, 2015 the final rule was published regarding the regulations of 19 CFR parts 181 and 191. These parts were amended to remove the requirement for actual pen and ink signature when documents are issued electronically.

This applies to drawback claims not liquidated as of August 7th, 2015 and does not apply to claims liquidated prior to August 7th, 2015 but protested. For more information, please click here.

CBP Posts Fact Sheet on De Minimis Exemption
U.S. Customs and Border Protection has posted a fact sheet that provides additional information on the increase in the de minimis value exemption from $200 to $800 that went into effect on March 10th, 2016.

The procedures and restrictions for release, which are outlined in the fact sheet, remain the same as those that applied under the previous $200 limit. Click here for the fact sheet.

AMS Removes Cotton Import De Minimis Provisions
Agricultural Marketing Service (AMS) amended the Cotton Board Rules and Regulations to remove the cotton import de minimis provision.

This will be effective July 15th, 2016. For the Federal Register notice, click here.

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CPB and OTR Working on MPF Restructuring

U.S. Customs and Border Protection (CBP) and the Office of the U.S. Trade Representative (OTR) are working to restructure the Merchandise Processing Fee (MPF) due to the Trans-Pacific Partnership (TPP). Further information has been provided regarding the proposed plan for restructuring the way we currently calculate MPF.

Rather than being calculated on an ad valorem basis, which is prohibited under TPP, the MPF would be a charged as a flat fee based on the value of the shipment. The MPF is currently calculated at 0.3464 percent of entered value for entries above $2,500, with a minimum fee of $25 and capped at $485 per entry. This restructured MPF would affect all formal entries imported into the U.S. with the fee breakdown being as follows:

  •  Minimum $30 MPF on entries valued between $2,501 and $20,000
  • $120 MPF on entries valued from $20,001 to $55,000
  • $260 MPF on entries valued from $55,001 to $130,000
  • Maximum $500 MPF on entries valued at more than $130,000

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Obama Signs Trade Facilitation & Trade Enforcement Act

Sadie Keljikian, Top Billion Finance
Two weeks ago, President Obama signed H.R. 644, or the Trade Facilitation and Trade Enforcement Act of 2015. The Act includes supplemental provisions to international trade agreements including the recent Trans-Pacific Partnership.

The Act provides general policy adjustments and covers potential loopholes to existing and future trade agreements. Among them is the official authorization of CBP, allowing Customs and Border Patrol to operate within the Department of Homeland Security for the first time since its establishment in 2003. The Act also provides funding to the CBP to update automated tracking systems to ensure that US customs laws are upheld.

H.R. 644 also provides enforcement against currency manipulation and “dumping,” or predatory pricing used in international trade to undercut local markets and drive away competition. The Act combats these practices with strengthened semiannual currency reports and more specific guidelines to identify and quickly rectify any currency manipulation attempts by foreign governments.

Labor practices are also addressed in the Act. While it has proven difficult for the US to combat unethical labor practices abroad and even at home, particularly in the apparel industry, one aspect of the difficulty has been negated with H.R. 644. Formerly, there was an exception known as “consumptive demand,” meaning that if a scarce product was available, it would be allowed into the US regardless of the conditions under which it was produced. This exception no longer applies, limiting the irresponsible and illegal behaviors that occur in many supply chains, including forced or indentured labor.

Trade between the US and Israel as well as between the US and Nepal will also be bolstered, as the Act combats politically motivated obstructions to Israel and allows duty free export of certain products from Nepal to the US. This will create a more open trade route to strengthen the relationship between the US and Israel as well as assisting Nepal in its economic and social recovery.

The Act has several other provisions, including clear criteria regarding intellectual property protection, a permanent ban on taxing internet access on a state or local scale, promotion of small business exports, and strengthening of the Trade Promotion Authority, or TPA. The reaffirmation of TPA is unsettling to those who oppose trade agreements like the recent Trans-Pacific Partnership and NAFTA, since it allows the President to fast-track these agreements, allowing less time for Congress to review and discuss the potential effects of the deal.

In general, H.R. 644 seems to protect the US from dishonest trade practices and solidify systems that are already in place, making international trade simpler and more cost effective. It also seems to streamline the customs process and discourage unsafe and irresponsible labor practices, but obviously, it is yet to be seen what the real effects will be.

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West Bank Country of Origin Marking Requirements

As per U.S. Customs and Border Protection (CBP), those manufacturing goods in West Bank must ensure that all goods produced in West Bank or Gaza Strip are marked correctly. Goods entering the U.S. from these locations must abide by these marking requirements.
Goods produced in West Bank or Gaza Strip must be marked as originating from:
• “West Bank”
• “Gaza”
• “Gaza Strip”
• “West Bank/Gaza Strip”
• “West Bank and Gaza” or
• “West Bank and Gaza Strip”
It is not acceptable to mark these goods with “Israel”, “Made in Israel”, “Occupied Territories-Israel” or any variation.

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CBP Begins Third Phase of New GSP

U.S. Customs and Border Protection (CBP) has entered the third phase of its renewed Generalized System of Preference (GSP) Retroactive Refund Processing. The system was enacted on July 29th, 2015 and remains in effect through December 31, 2017.

During the third phase, importers can now initiate requests for refunds and submit them to CBP ports.

Second Explosion Contaminates Exports in Tianjin

Officials warn that a second explosion at the port in Tianjin, China on October 12th could have contaminated goods scheduled for export.

The FDA is requiring importers to submit entry and shipping documents for all human and animal food products, human and animal drug products, and medical devices that were originated from, stored in, or transmitted through the Binhai New Area industrial center or Xiditou Township of Beichen District in Tianjin. The FDA is taking these precautions due to the large quantities of hazardous materials stored in the area. The agency requires importers to report where exactly products were stored, how they were packaged and what testing is being done to ensure that they are not contaminated.

CBP Updates GSP

US Customs and Border Protection (CBP) has completed 98% of the automatic refunds for Generalized System of Preference (GSP) for entries filed with the “A” SPI and were duty paid. CPB is reviewing the remaining 2% of qualifying entries for expected refunds manually and hope to have them completed by early November. Those who have not received their expected automatic refunds by the end of the first week of November are advised to file a request with CBP.

CBP will also update their Automated Commercial Environment (ACE) Reports on October 31st to include a new homepage, more intuitive design to simplify navigation, and revisions to the training resource page.

Update on ACE PGA Pilot Rollout Plan

The first phase of the Partner Government Agency (PGA) Pilots in the Automated Commercial Environment (ACE) was initiated last week. The Food and Drug Administration (FDA) and the National Highway Traffic Safety Administration (NHTSA) are two of the fourteen agencies participating in the pilots.

The second phase of the PGA Pilots is scheduled to begin on September 2, 2015.

You can find the schedule here: ACE PGA Pilot Rollout Plan 2015