Industry trends

The Latest on Tariffs and Their Impact on Business Strategies [Video and Audio]

  • 4/3/2020
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CLA has contracted with Franklin Partnership and Omar Nashashibi to provide the content for this video and audio series. We regularly add new clips as changes in the trade war and U.S. tariff policies develop, so check back periodically for the latest updates.

We’ve talked extensively with Omar Nashashibi of the Franklin Partnership and others to record a series of short videos and audio clips that can help you better understand the goal of tariffs, their likely impact on inflation, the current and near-term trade environment, potential global quotas, and strategies for staying competitive.

Infographic: Tariff Mitigation and Management

Small Business Administration Paycheck Protection Program

On March 31, the Small Business Administration (SBA) released its sample application for the Paycheck Protection Program (PPP) loan established in the recently passed CARES Act signed into law March 27, 2020. The PPP will use the SBA’s network of more than 1,800 certified lending institutions nationwide. Omar Nashashibi of The Franklin Partnership in Washington, D.C. previews the loan program available starting April 3 to businesses with fewer than 500 employees. The loan matures in two years at a 0.5% interest rate, with payments deferred for six months. The Department of Treasury posted information sheets for borrowers and lenders, explaining that the lender may forgive portions of the loan.

Phase 3 COVID-19 Stimulus Package

The United States Congress has passed its third installation of COVID-19/Coronavirus response packages. A fourth could possibly come in April. Omar Nashashibi of The Franklin Partnership in Washington, D.C. provides an overview of what is included for businesses and individuals. From creating a $500 billion loan package to expanding low interest loans to small businesses, this $2 trillion Phase 3 COVID-19 bill is the largest stimulus in U.S. history and impacts virtually every corner of the economy.

Definition of an Essential Business

Roughly half of the United States is currently under stay-at-home orders at the city, county or state level. Omar Nashashibi of The Franklin Partnership in Washington, D.C. discusses who determines which businesses may remain open. What is an essential business? Where can you go to find out whether you can continue operations? States and counties are making these decisions, but the federal government has started to provide guidance. As more states impose stay-at-home directives, this video will help you find the information you need to comply with the orders.

COVID-19 Phase 2 Bill and Stimulus

On March 18, the U.S. Senate requested a signature from President Trump for the Families First Coronavirus Response Act after the House passed its revised version on March 16. Omar Nashashibi of Franklin Partnership provides an overview of what’s included in the bill and the prospects for a Phase 3 economic stimulus measure to support the economy during the COVID-19 disruptions. This video highlights the paid sick leave and FMLA provisions included in the Phase 2 law and the proposals put forward by the White House to support airlines, small businesses, and other sectors and individuals.

The European Travel Ban and COVID-19’s Impact on Trad

On March 11, the White House issued a Presidential Proclamation restricting travel from 26 European nations. Omar Nashashibi of Franklin Partnership provides an overview of the new travel ban, effective 11:59 p.m. on March 13, 2020, and who it covers. Additionally, Nashashibi addresses the broader impact of COVID-19 on trade with Europe and China and potential domestic economic disruptions ahead, along with U.S. government response. We will continue to bring you the latest updates on business-related news and the impacts of the coronavirus.

Contact us if you have questions related to the impacts the coronavirus may have on your business.

The Economic Impacts of Coronavirus

Reports of disruptions to manufacturing, distribution, and retail resulting from the Coronavirus continue to grow. Omar Nashashibi of Franklin Partnership discusses what he is hearing from his contacts and clients about the latest in China including whether workers are returning to their jobs, and ongoing and expected delivery delays. Connect with your CLA representative to be proactive in the potential economic impacts of Coronavirus. We can help you explore alternative suppliers and ways to mitigate disruptions to operations.

New EU Tariffs and Their Impact on Trade

On February 14, 2020, President Trump reaffirmed the 25 percent tariffs in place on hundreds of European Union imports from wine and cheese to power tools and clothing. Omar Nashashibi of Franklin Partnership discusses the latest with the years long aviation dispute concerning government subsidies to Boeing and Airbus. We understand you may have no choice but to import from Europe, so it is important to explore possible alternatives as trade disputes continue. Our CLA professionals can help you identify the best option for you moving forward.

A New Trade Agreement to Lower Tensions Between the U.S. and China

On January 15, 2020, President Trump and Vice Premier Liu He signed a ninety page Phase I agreement in an effort to lower tensions between the world’s two largest economies. In this video Omar Nashashibi of Franklin Partnership explains what is in the agreement, what it means for U.S. businesses, and what are the next steps in the U.S.-China trade wars.

USMCA (New NAFTA)’s Impacts On Labor, Healthcare, The Environment, and Steel

On Dec. 10, 2019, the U.S., Mexico, and Canada formally signed the USMCA, an updated NAFTA, following months of negotiations between the White House and Democrats in the U.S. House of Representatives. In this video from Omar Nashashibi of Franklin Partnership we outline the major changes agreed to by Speaker Nancy Pelosi, labor leaders, the White House, and Mexico. Sources in Washington indicate the U.S. House of Representatives could vote to approve the new NAFTA on December 19, one day prior to departing for the Christmas recess. Senate Majority Leader Mitch McConnell indicated he will not schedule a vote until after the Senate concludes the impeachment trial, which many believe could begin around Jan. 7, 2020, and last at least two weeks.

Major changes include:

  • New rules of evidence for labor and environmental enforcement.
  • Labor enforcement rules which apply to all goods and services in Mexico, and can penalize goods created using labor violations.
  • A party cannot block a dispute settlement panel from being formed.
  • Creation of an interagency committee to monitor Mexico’s labor practices.
  • Unions may have attachés on the ground in Mexico, though it remains unclear if either U.S. officials or American labor representatives may inspect Mexican facilities.
  • Adds Multilateral Environmental Agreement language for all parties.
  • New Customs verification system for fauna and flora coming from Mexico to ensure properly harvesting practices.
  • Removes requirement to provide at least 10 years of patent exclusivity for biologics.
  • Maintains content liability protections for internet companies.
  • Requires steel to be “melted and poured” in North America to meet standards for use in auto production (delayed seven years).

Japan Moving on U.S. Trade Agreement; Phase II of Talks Under Consideration

In September, the U.S. and Japan announced a trade agreement primarily focused on increasing American agricultural exports to Japanese consumers. The lower body of the Japan’s parliament has now advanced the agreement, sending it to the upper chamber. Omar Nashashibi of Franklin Partnership discusses the next steps and whether the U.S. and Japan will move forward with a more comprehensive Phase II of a free trade agreement.

Nov. 30 China Tariff Exclusion Extension Deadline

The Office of the U.S. Trade Representative announced it will accept applications for another twelve months of relief from those importers granted a Dec. 28, 2018 exclusion from the 25 percent Chinese tariffs. Omar Nashashibi of Franklin Partnership provides an update on the tariff exclusion process, and advises clients with imported products excluded from the tariffs on the Dec. 28, 2018 List 1 notification to contact their CLA representative ahead of the crucial Nov. 30 deadline. To see if the U.S. government granted an exclusion from paying the 25 percent tariff for products you import from China, click here.

Tariff Increase on Thousands of Chinese Imports Called Off

In an effort to ease tensions between the world’s two largest economies, President Trump and Chinese President Xi reached a “phase one” trade deal that largely maintains the status quo. It’s no grand bargain, but the agreement stopped the increase of tariffs on over 7,000 Chinese imports from 25% to 30% that were slated to go into effect on October 15. The tariff increases on consumer products set for December 15 remain scheduled for now. Omar Nashashibi of Franklin Partnership summarizes the deal’s terms and reach, as well as its probability of being signed at the November APEC meetings in Chile.

Trade Agreement with Japan Spells Relief for Farmers

American farmers, distributors, and suppliers are benefitting from the new trade agreement with Japan, which has reduced or lifted tariffs on many U.S. agricultural exports. Omar Nashashibi of Franklin Partnership offers insights for those in the agriculture industry.

Questions Surround the Fate of the New NAFTA

Amid the international uncertainty of the trade wars, manufacturing business leaders are eager for some industry stability. The passage of the “new NAFTA” deal could offer it, but the legislature remains polarized. When will Congress act? Will impeachment affect its outcome? Can House Democrats get to a "yes" vote? Omar Nashashibi of Franklin Partnership discusses the timing for House action, Speaker Pelosi's strategy, and which issues remain in contention.

Japan Lifts Tariffs on Many U.S. Agricultural Exports

American farmers, distributors, and suppliers can expect some relief from the new trade agreement with Japan. Japan will reduce or lift tariffs on many U.S. agricultural exports, including fresh and frozen beef and pork, almonds, blueberries, cranberries, walnuts, sweet corn, grain sorghum, food supplements, broccoli, prunes, wine, cheese, ethanol, fresh cherries, egg products, and tomato paste, among others. Omar Nashashibi of Franklin Partnership outlines the timing and how those in the industry will be affected.

China’s New and Reinstated Tariffs Will Hit U.S. Agriculture and Auto Industries the Hardest

China has announced it will impose 5% or 10% tariffs on more than 5,000 U.S. imports — worth $75 billion — in virtually every industry, starting September 1. It will also reinstate the previously suspended 25% tariffs on 211 autos and parts, effective December 15. The United States is retaliating by increasing tariffs to 30% on $250 billion of Chinese exports on October 1, and by raising pending tariffs on many consumer goods to 15%, effective September 1. Omar Nashashibi of Franklin Partnership explains how U.S. agriculture and auto industries will particularly be affected.

China tariff exclusions approved from Lists 2 and 3

Effective August 7, the U.S. Trade Representative approved its first batch of requests to exclude an imported Chinese product on List 3 from 25 percent tariffs, while announcing an additional 69 approvals from List 2. Omar Nashashibi of Franklin Partnership in Washington, DC, has a status update on the tariff exclusion approval rate. As a reminder, CLA can help clients with the exclusion process and provide insight into submitting a successful request.

U.S. labels China a currency manipulator

On August 5, the United States formally declared that China is manipulating its currency by undervaluing the yuan. Omar Nashashibi of Franklin Partnership explains what this means in the ongoing U.S.-China trade wars and how a formal designation could allow U.S. businesses to request taxes on Chinese imports, citing currency as an illegal subsidy.

10 percent tariffs on additional Chinese imports may be imminent

On August 1, President Trump tweeted his intention to impose 10 percent tariffs on $300 billion of goods imported from China, many of them consumer and food products. Sources in Washington indicate that this move shows the president’s frustration with how talks between the United States and China are going. Omar Nashashibi of Franklin Partnership discusses the latest escalation in the trade war and the impact 2020 Democratic candidates could have on American businesses and consumers.

Europe Is the Latest Front in the Trade War: Possible Tariffs on Imports from the EU

The Boeing and Airbus aviation disputes between the United States and the EU, dating back to the 1980s, have heated up again. U.S. threats to impose a 100 percent tariff on $21 billion in European imports to recover costs from the EU’s illegal subsidies could mean much higher prices on copper and other metals used in the aviation and automotive industries — but also wine and cheese and many other consumer items. The EU, of course, would retaliate with tariffs of its own.

House Vote on “New NAFTA” Unlikely in July

House Democrats are still hashing out fixes to their four areas of concern in the “new NAFTA” deal: prescription drug pricing, labor provisions, the enforcement of those provisions (particularly in Mexico), and environmental issues. But progressives in the party are loath to give President Trump a victory, so “yes” votes are still in short supply. Omar Nashashibi of Franklin Partnership explains when a vote might come to the House floor.

China doubles down on harder-line trade negotiations

We had hoped to see the trade war de-escalate after the GTO Summit in Japan, but negotiations with China have in fact worsened. China’s pledge to purchase $50 billion in U.S. agricultural goods has failed to materialize, and it still has not addressed its theft of intellectual property and other sticking points. It’s unlikely that any tariffs will be lifted soon, and the United States could impose another 25 percent tariff on thousands of items that would directly hit U.S. consumers during the holiday season.

Canadian and Mexican tariffs on steel and aluminum lifted

It’s not all about China. The United States reached agreements with Canada and Mexico to lift the 25 percent tariffs on imported steel and the 10 percent tariffs on imported aluminum. More important, Canada and Mexico have removed all retaliatory tariffs, bringing considerable relief to American exporters.

These agreements help clear the way for ratification of the United States-Mexico-Canada Agreement (USMCA), the “new NAFTA.”

Highlights of the Canada and Mexico agreements

  • The 25 percent tariffs on steel and 10 percent tariffs on aluminum from Canada and Mexico have been lifted. All parties will establish an import monitoring system, and the focus on transshipments from China will increase, as well as on those through Canada and Mexico into the United States.
  • There are no quotas on imported steel and aluminum from Canada and Mexico.
  • Retaliatory tariffs against U.S. exports to Canada and Mexico have been lifted. Tariffs on U.S. exports to the EU, Japan, and other countries remain.
  • Canada and Mexico may not re-impose retaliatory tariffs in the future on non-steel or non-aluminum products from the United States. U.S. farm and other products appear to be clear of future tariffs because of this dispute.
  • If there is a surge of certain steel and aluminum items imported into the United States, the United States can re-impose tariffs only on those products. Canada and Mexico may retaliate, but only on those products (not dairy, farm, etc.).

NAFTA/USMCA vote appears tenuous

Lifting the 232 tariffs on steel and aluminum certainly removes a major stumbling block to ratifying the USMCA and has brought welcome relief to American farmers, manufacturers, and exporters. But political and policy obstacles remain in the U.S. Congress. The White House must resolve these in the next 30 to 45 days in order for lawmakers to hold a vote prior to their August break. Most observers in Washington believe a vote after Labor Day has a slim chance of succeeding.

Complicating matters, Canada has yet to schedule a vote, and its Parliament shuts down at the end of June in preparation for the October national elections. Prime Minister Justin Trudeau may be hesitant to bring a vote on the new NAFTA that may not pass, injuring him politically. He may not want to risk forcing a vote prior to House Speaker Nancy Pelosi agreeing to move the trade pact through the U.S. Congress.

Tariff rate increased to 25 percent on nearly 6,000 Chinese imports

President Trump has increased the 10 percent duty on $200 billion worth of imports from China to 25 percent, effective May 10, 2019. This will very likely cause even more disruption for your manufacturing and distribution chains, suppliers, and customers.

Included in the list of 5,745 products now subject to a 25 percent import tax (see List 3) are machinery and mechanical appliances, ships and boats, live or frozen fish and crustaceans, cosmetics and shampoo, carpet and floor coverings, wooden home furnishings, and even string Christmas lights.

President Trump announced the imposition of the increased tariff rates following several weeks of failed trade negotiations.

Retaliatory tariffs expected; talks will likely continue

In an effort to ease the markets’ reaction and prevent massive disruption, items from China shipped prior to May 10 and entering the United States prior to June 1, 2019, will be assessed the 10 percent tariff, rather than the 25 percent increased rate. However, this "on the water" reprieve will not extend to items exported to the U.S. as of 12:01 a.m. on May 10.

The June 1 date probably indicates that the U.S. and China will continue talks in the coming weeks. The tariff rate increase was reportedly triggered by China’s removal of language requiring it to pass legislation implementing many of the intellectual property theft changes in the agreement. Both sides had hoped for a final agreement prior to the G-20 meetings on June 28 and 29, and President Trump and President Xi will likely talk by phone in the interim. The U.S. may release the final List 4 of $325 billion Chinese imports potentially subject to tariffs as early as next week. China has reaffirmed its intent to retaliate, though it did not issue a list of American exports facing a tax.

Many industries are feeling the pain

American producers, manufacturers, distributors, retailers, farmers, and consumers bear the brunt of Chinese retaliation and increased prices for imported goods.

Despite the additional disruptions and billions in added taxes on U.S. manufacturers and distributors, hope remains that the two sides will address their outstanding issues and come to a limited solution by the end of June. But in all likelihood, the U.S. will continue to impose a 25 percent tariffs on the original Lists 1 and 2 pending further Chinese compliance with terms of the trade agreement.

What you should do

You should identify vulnerabilities in your current supply chains and potential disruptions from your customers and distributors. Relations with China remain on edge, so be aware of policy changes and think about how to adapt now to prepare for tomorrow. It is important to remember the impact not just on Chinese imports but also U.S. exports as China retaliates with tariffs of its own.

Consider that this trade war may linger for some time. China may delay an agreement to see how the U.S. 2020 presidential elections play out. Many suspect the Chinese would prefer to wait out the current administration. But Democratic presidential candidates may continue with the hard-line approach and possibly try to be “tougher on China” than President Trump. So, even if a Democrat were to win the White House, many non-consumer-direct products from China may continue to face tariffs.

We are here to help

We have strategies to help you adapt to the uncertainty, increased risk, and additional costs from tariffs and U.S. trade policy. If you aren’t already working with a CLA advisor, feel free to email us your questions.

Negotiations take a step backward; more tariffs may be imposed

The Chinese have slowed talks and pulled previously agreed-upon items from the table, and President Trump has threatened to respond with tariffs on an additional $350 billion in goods not previously affected, while also raising the existing 10 percent tariff rate to 25 percent. This setback will probably affect the late May/early June timeline for concluding talks.

Some tariffs expected to remain in place after negotiations

Current negotiations are aimed at addressing China’s theft of U.S. intellectual property and technology transfers, and talks should wrap up by the end of May or early June. We expect much of the $200 billion in tariffs to be lifted, with about $50 billion of them remaining in place to maintain leverage over China. Farmers in particular can expect relief.

Tariff supply chain strategies in 2019

As the trade war continues to ramp up, manufacturing and distribution companies need to think differently about their supply chains. It's time to investigate alternatives, seek opportunities, and reduce risk in order to combat the rising costs stemming from increased tariffs around the world. Our panel of international professionals offer exclusive supply chain insight on the trade war and features:

  • Paul Stapanek of Shanghai-based Complete Manufacturing & Distribution
  • Matthew Bock of Middleton & Shrul, International Trade Law
  • Omar Nashashibi of the Franklin Partnership, Government Relations

 

Current tariff exposure

Here’s a short summary on the U.S. tariffs on raw materials and imports, as well as the retaliatory tariffs from other countries on autos and automotive parts. There are currently tariffs from all over the world on virtually all steel and aluminum entering the United States.

End game for tariffs

The goal of tariffs is to level the trade balance with China and the entire globe. Ultimately, however, tariffs are designed to create a global quota system that could control the sourcing of materials like steel, aluminum, semi-conductors, uranium, and artificial intelligence items.

Timeline to tariff relief

No tariff relief is likely coming in the near future. There may be more clarity on what lies ahead after the 2018 mid-term elections, but the trade war is a long-term battle, and any easing up on tariff rates won’t likely come before spring of 2019.

Being globally competitive with tariffs

Omar Nashashibi of Franklin Partnership offers strategies manufacturers and distributors can employ to stay competitive on the world market amid tariffs and quotas, including how to consider customers as well as suppliers.

Tariffs increasing reshoring activity

Manufacturers are bringing operations back to the United States from abroad as China becomes more expensive to operate in, partly because of wage increases and rising transportation costs, as well as tariffs and potential quotas.

Tariffs’ long-term impact on inflation

Surcharges and suppliers’ increasing costs are expected to drive the price or raw materials and create a captive market for the next few years, making greater inflation a likely outcome through 2021.

How we can help

CLA’s manufacturing and distribution professionals and international business advisors can help you assess the impact of tariffs on your operations and craft short- and long-term strategies for competing amid the trade war.

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