The trade relationship between the U.S. and China is running on high anxiety.
At the Sourcing Journal Global Outlook Conference, two experts gave insights into one of the most complicated and significant geopolitical issues dividing the world’s two largest economies. Topping the key issues are punitive tariffs between the two nations.
Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA), said legislation pending in Congress is focused on more enforcement and tools to deal with China.
“There’s also a lot of frustration coming from the administration and from Congress about the lack of progress…not only directed at China, but also lack of progress directed at the administration from Congress and certainly in the case of tariffs and coming up with a viable tariff exclusion process,” Lamar said. “I wish I could tell you that all that hand wringing and all the finger pointing was going to come to an end soon, that we’d see some sort of long term resolutions, but this is an election year and I think short-term progress is going to be unlikely.”
Sally Peng, managing director of export controls, sanctions and trade at FTI Consulting, said most people didn’t think the tariff-led U.S.-China trade war begun by the Trump administration would last this long.
“It does seem to be, at least from clients that we speak to, that they need to look beyond the U.S.-China trade and still be able to do business,” Peng said.
Lamar felt the Biden administration was not addressing trade issues with enough urgency.
“Certainly, President Biden does see the urgency on logistics and supply chain, both as an outcome of Covid, which definitely has his attention, and where connected to inflation, which of course also has his attention,” Lamar said. “What’s interesting is that the administration still doesn’t connect the corrosive effect of tariffs, persistent tariffs, on inflation, and that’s the point that we keep trying to make to them, so they see that tariff reduction can lead to lower pricing.”
Peng said one word that sums up the situation is “frustration.”
“Everyone kind of thought…that with the new president, something will be different, something will be coming to end this, but unfortunately, we just don’t see that that’s happening,” she said.
Sourcing Journal editor in chief Peter Sadera noted that recently, U.S. Trade Representative Katherine Tai said to Congress that “the United States has repeatedly sought and obtained commitments from China, only to find that follow-through or real change remains elusive.” She also noted that tariffs have not led to any change in behavior and their progress on any kind of phase two deal “has been unduly difficult.”
“We long opposed the tariffs…but now that the deal is in place, removing the tariffs is very, very difficult,” Lamar said of the previous administration’s Phase One trade deal with China. “Politically, they can’t really be removed, except for exclusions, unless there is really substantive progress on the deal, and that’s just probably not in the cards, or perhaps there’ll be some other kind of enforcement tool that will replace these tariffs…that then gives the president political coverage to move away from the tariff approach.”
However, Lamar agrees with Tai that tariffs have not led to any meaningful changes, which is why he believes Beijing isn’t going to change its behavior “by making it more expensive for Americans to get dressed every day.”
Peng noted that while USTR did recently extend tariff exclusions on certain products, “unless you’re looking at an overall solution, the exclusion is just going to be a very small impact” on importers.
Lamar called the exclusions a “trickle,” although “if you were one of the companies that managed to get exclusions previously, then got them got put in place for consideration this last go round…you won the lottery.”
The America COMPETES Act, which would repeal de minimis tariffs, was also a hot topic.
Lamar said the proposal in the America COMPETES Act “is probably seen as a missed opportunity” and noted the “mismatches on the way the policy has ultimately been implemented and what some of the results have been.”
“We think there are better ways to address some of the concerns that have been raised,” such as the de minimis rules and whether they inadvertently help counterfeit products that are sold in e-commerce, he added.
“I would also say that the answer right now is not to raise more tariffs,” Lamar continued. “If you were to do what is proposed in the American COMPETES Act, that would be a tariff-raising proposal–doesn’t make any sense right now at a time when we’re facing some of the highest inflationary pressures in a generation.”
Regarding a renewed push for Made in USA and nearshoring, Lamar stressed the rising interest in doing more business in Central America.
“One of the things that a lot of our members are telling us is they’re diversifying out of China and they’re looking to do more nearshoring,” he said. “The problem is that the opportunities for nearshoring in say, CAFTA-DR, are stymied by the rules of origin and the approach that we’ve had for the last 20 years…The rules of origin works for some people, which is great, but it doesn’t work for enough folks, and it also hasn’t led to enough investment in yarns and fabrics, which is really one of the things [it] was supposed to have done over the last 20 years.”
While the Central American Free Trade Agreement does present some important opportunities, there aren’t enough right now to “move the needle,” according to Lamar. “One of the things we’re trying to do, and we’ve launched a coalition to address this, is to really engage policymakers and frankly, all stakeholders to find ways to incentivize not just the trade, but also the investment.”
Discussing the Uyghur Forced Labor Prevention Act, which comes into effect this summer with wide-ranging ramifications on transparency and origin of goods, Lamar said AAFA was pleased to see the legislation passed after lobbying for it.
“We see it as a valuable course correction from Congress, directed at CBP, to make sure that we have a system that works,” he said. “One that …treats trusted traders as partners and has clear achievable evidentiary standards, and these are missing from the current customs Withhold Release Order (WRO) process that’s been in place for a while. In many respects, the process that we’re engaged with right now, with hearings, with comments with real substantive discussions between all of the stakeholders and the enforcement agencies, and all of the government, not just Customs…is a process that should have been going on two years ago.”
Peng said most companies want to be in compliance, but are unsure of regulations.
“Everyone still wants [and needs] to do business in China, but forced labor and issues relevant to forced labor has [made] it very difficult for many large companies to do business in China,” she said.
Summing up China’s zero-Covid policy that has resulted in closed ports and disruption of the supply chain, Peng warned of a “huge impact” and “really bad supply chain scenario” for months to come. She said the Chinese government is “very mindful” of the impact and is “trying very hard not to close everything down.”