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What the ‘Chaotic’ First Half of the Year in Trade Means for the Second

The first half of 2018 was dismal at best for trade.

With President Trump fixated on “fixing” what he believes is broken in U.S. trade deals and partnerships, much of the world, manufacturers in particular, have been waiting with bated breath to realize the ramifications of one upended—or newly introduced—trade measure after another.

Since the start of the year, the U.S. has burrowed into renegotiations on the North American Free Trade Agreement with Canada and Mexico, alluded to progress in each round of talks, then stalled largely on the proposal of a sunset clause that would see the trade deal self-terminate after five years. Trump also tried to tie the wall he wants at the Mexican border to the NAFTA negotiations, which was met with refusal, though talk of the wall has resurfaced in full force amid ongoing immigration discord in the country.

Less than a month ago, Trump said he might dismantle NAFTA altogether, opting instead for two separate deals, but neither Canada nor Mexico seem keen on the concept.

And there were the steel tariffs. Trump initially mulled a 25 percent tariff on foreign steel imports and 10 percent on aluminum in February, citing national security concerns and stirring up tensions with the United States’ closest allies. The tariffs—which officially took effect as of June 1—were purportedly intended to target China, but with Canada being the biggest supplier of steel and aluminum to the U.S., the impact was wider reaching. As such, NAFTA negotiations grew further strained. At one point, Canada, Mexico and the European Union were exempted from the metal tariffs for a period designed to bring trade between the U.S. and these parties back into better balance. But when that result failed to manifest, Trump put the tariffs back on the table, and with them came retaliations. In the last month, Mexico has since put tariffs on U.S. farm products in response to the metal tariffs, and the EU placed $3.3 billion worth of duties on U.S. products—effective already—like T-shirts, jeans and leather shoes. On Friday, Canada finalized reciprocal tariffs that take effect from July 1, namely on steel and aluminum products, but tablecloths and bedding made the list too.

Amid the steel tariffs came the China-targeted tariffs. First it was $50 billion worth of Chinese products the U.S. said would face tariffs up to 25 percent as a clap back to China’s “unfair” missteps tied to intellectual property and forced technology transfer. Then China hit back with tariffs on 128 U.S. products like fruit, wine and steel in response to the U.S.-imposed metal tariffs. After the U.S. announced in April the 1,300 Chinese products it would add new duties to, China responded again with $50 billion in new tariffs, including 25 percent on U.S. cotton.

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Things carried on in much of the same fashion during the first half, resulting in what’s now a full-blown trade war, where neither the U.S. nor China is backing down, and the tariffs are only getting bigger.

On the sidelines of all of that, 11 nations signed a revived TPP trade deal without the U.S. in March, and between January and June, Trump said he might want in, then that he didn’t, then that he’d reconsider it, and again that he wouldn’t. Separately, Mexico and the EU worked out a trade deal, and China and the EU cozied up to talk about closer trade relations.

Put plainly, the first half of the year was “absolutely chaotic,” for trade according to Steve Lamar, executive vice president of the American Apparel and Footwear Association (AAFA).

“The administration launched a trade war with all of our largest trading partners by imposing tariffs and threatening more. Deadlocks in NAFTA talks, contrasting with other countries moving forward with FTAs that don’t include the U.S., raised questions about U.S. leadership on trade.”

For the apparel industry, making forward moves posed challenging as each day seemed to bring with it new changes on trade, making even contingency plans difficult to put in place.

“Apparel and footwear executives were reminded on a daily basis that they need to (A) engage and pay close attention to Washington, and (B) keep updating their sourcing plans to make sure their supply chains are out of harm’s way,” Lamar said.

Many companies focused on—at the very least—minimizing their reliance on China, which has faced the greatest of Trump’s trade wrath.

“The first half of 2018 is seen as the most disruptive in our supply chain due to the trade war. Even though the retaliatory duty has not directed at textile and footwear from Asia or China, we all worry that it is only a matter of time,” Sally Peng, Asia Pacific leader for trade law firm Sandler, Travis and Rosenberg, said. “Many brands have been exiting out of China before the trade war. Now they are accelerating their effort to look for alternative sourcing places.”

So what’s in store for the second half?

More of the same if you ask Lamar.

“The president, and his advisors, feel he has achieved momentum in his efforts to reshape trade policy,” he said. “He will want to move forward to achieve a political win on NAFTA and continue to press for political wins in China and Europe.”

The sentiment is similar for Peng, who said she hasn’t seen any signs that things will simmer in the second half.

“There are news reports that the U.S. might pull out from WTO, so I am really not seeing the upside,” she said.