Commentary: It seems like 2019 has been a roller coaster of a ride for international trade and affairs. Scarcely has one been able to catch his/her breath when another crisis pops up creating uncertainty in the markets. As we approach the end of the year, here is a wish list of international trade and affairs that I hope will be resolved in 2020.
First is my hope that the U.S.-Mexico-Canada Agreement (USMC or commonly referred to as NAFTA 2.0), which passed the House of Representatives on December 19, will quickly be approved by the Senate, and finally signed by the President. The fine-tuning of the 25-year-old agreement deals with adding stricter North American content rules to automotive products produced in the NAFTA zone, and mandated minimum wages of $16 per hour for 45 percent of trucks and 40 percent of light trucks manufactured in North America. Provisions for energy, e-commerce, and pharmaceuticals are also included in the USMCA, along with stricter labor and environmental standards. The content of the renegotiated agreement is generally accepted by industry and labor unions. It is hoped that the current partisan vitriol between Congress and the Executive Branch, and the Democrats and Republicans, will be set aside in order to ratify this agreement, which is critical in helping to maintain our competitiveness in the world.
I hope for a resolution to the U.S.-China trade war in the upcoming year. It seems that we have initiated a trade war with China without clearly understanding what the end game is: Reduction of the trade deficit? Stricter provisions against China demanding that U.S. companies hand over their intellectual property in order to do business in that country? The attempt to curb China’s influence in global trade affairs? It seems that both sides have dug in their heels and are playing a game of chicken. Although it was recently announced that there had been limited progress in trade negotiations, namely the averting of tariffs on an additional $160 billion of Chinese imports (currently the U.S. is imposing tariffs on $370 billion of Chinese goods), and the slashing of tariffs from 15 percent to 7.5 percent on Chinese consumer products that have been in place since this past September. In turn, China has agreed to buy more U.S. goods and agricultural products.
While this sounds good at first blush, details of this first step are still uncertain.
This latest development is being described by economists and industry experts as pretty much just getting U.S. industrial and agricultural exports to China back to where they were when the trade war started. The reduction in exports to China has been borne painfully on the backs of U.S. farmers and ranchers. According to Zippy Duvall, President of the American Farm Bureau Federation, "China went from the second-largest market for U.S. agricultural products to the fifth-largest since the trade war began." So even though progress is being touted as having been made, it essentially takes us back to where we started with billions of U.S. exports to China being lost in the interim.
I wish that Brexit, the U.K.’s exit from the European Union (EU), proceeds rapidly in 2020. If this is inevitable, a new groundwork needs to be prepared in order to understand the new policies, procedures, and logistics of dealing with the U.K. separate from the EU, and also separate from Ireland. Solving Brexit will help calm global markets, especially European markets.
I hope that the federal government is receiving the message loud and clear that the biggest bang for the federal buck is investing in border infrastructure, namely ports of entry, rather than a border-long wall. It is at the ports of entry where we have thousands of asylum seekers surrendering themselves in order to go through the asylum process. Modernized ports of entry will provide a portal to increased commerce with Mexico and also stronger security at our southern border.
Finally, I wish that in 2020 our leaders in the nation’s capital will come to the realization that the world economy is integrated and intertwined. A path by the U.S. to isolationism is almost impossible and counterproductive. We trade with other countries because it makes sense economically, and it brings Americans benefits in the form of diverse products, at often economically beneficial prices. A go-it-alone U.S. approach will result in countries such as China and Russia quickly filling our void in world commerce and international relations. Since World War II, the U.S. has been the bastion of democracy and free trade throughout the world. We have influenced allies, ended the Cold War, and created the modern-day global economy, which has provided us with prosperity and security. To abdicate this role would be anathema to the American values we have gotten most of the world to buy in to.
I wish you and your loved ones a happy and prosperous 2020!
Jerry Pacheco is Executive Director of the International Business Accelerator, a non-profit trade counseling program of the New Mexico Small Business Development Centers Network, and the President/CEO of the Border Industrial Association. He can be reached at 575-589-2200 or jerry@nmiba.com