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Is the US Getting Left Behind on Trade?

Depending on who you ask, the United States is either the 800-lb gorilla around which all the world’s moves should navigate, or the 800-lb gorilla that’s increasingly getting left out of feeding sessions.

Either way, when it comes to the United States’ present position on trade, it isn’t much a matter of opinion—other countries are partnering on free trade more than the U.S. is.

Addressing this fact in a webinar co-hosted with Sourcing Journal Monday, the American Apparel and Footwear Association (AAFA) pointed out that while there’s been a lot of “noise” from the Trump Administration about trade policy and trade deficits and making trade more beneficial for the U.S., little has materialized in a comprehensive way.

Meanwhile, the World Trade Organization, which keeps a database of the world’s trade agreements, has been notified of 30 since Jan. 2016. The EU has its name on four of them, China on two and the U.S. hasn’t negotiated any.

Further to that data, the EU has 41 trade agreements in place, and China and the U.S. are tied with 14 trade agreements. The U.S., however, is presently working to possibly upend two more of its deals, the North American Free Trade Agreement and KORUS, the U.S.-South Korea trade deal. And that’s after Trump made pulling out of the Trans-Pacific Partnership agreement his first order of business, and amid allusions to updating CAFTA next—a project that could follow much the same pattern as present updates have. China, on the other hand, is pushing forward with its Regional Comprehensive Economic Partnership (RCEP), which has been called a rival to TPP and may be a deal that puts the U.S. in a less advantageous position in the Asia Pacific region.

Trade, as AAFA CEO and president Rick Helfenbein explained, has been President Trump’s enemy, a low-hanging fruit he could target to rally certain masses. And the move isn’t a new one for him.

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When Trump started dipping his toe into the political pool in the 1980’s, his enemy at the time was Japan. In an open letter to the American people published in The New York Times, and two other major papers, Trump wrote: “For decades, Japan and other nations have been taking advantage of the United States…Over the years, the Japanese, unimpeded by the huge costs of defending themselves have built a strong and vibrant economy with unprecedented surpluses.”

Though Trump has since shifted his focus to China, the message is largely the same.

“This was not new to him,” Helfenbein said. “It was a rallying cry.”

Apart from seeking tariffs served up in any form, President Trump has positioned the U.S. as somewhat alone in a corner when it comes to trade.

His strategy has been, according to Helfenbein, “Let’s only do one-on-one bilateral trade deals, rule out all multinational deals, make great business deals and have rigorous enforcement of those deals. The only problem with that is it hasn’t worked so far,” he said. “We haven’t had one bilateral.”

For now, the biggest thing occupying the trade community’s time, is the NAFTA renegotiation.

Where NAFTA stands 

Talks on modernizing the NAFTA trade deal have gone through five rounds, with a sixth coming up in Montreal, Canada in January. This week, there will also be an intercessional meeting in Washington. But progress on the deal has largely stalled.

Having been privy to some of these talks, AAFA executive vice president Steve Lamar said the NAFTA negotiations can be broken down into three buckets: fairly standard modernization issues that address things like e-commerce and digital trade, which weren’t factors when the deal took effect in 1994; issues related to things like sugar and dairy, which have caused strife; and novel ideas that haven’t typically been associated with the United States’ position on trade.

Issues in bucket three, not surprisingly, have been the biggest sticking points, as the U.S. has thrown ideas on the table, like making NAFTA terminate every five years unless there’s consensus to have it renewed, changing the dispute settlement mechanism, and other things that, according to Lamar, remove some of the market access that already exists in the deal.

“The presence of those is really making overall progress very, very difficult, and when you add that into the kind of persistent threats of withdrawal, it’s really unclear where we’re going to see the NAFTA talks go,” Lamar said.

It’s evident that the EU is working to command greater presence in trade, as has Mexico, which has 15 trade agreements in place outside of NAFTA, but that hasn’t so far softened the U.S. in its stance on the renegotiations.

“When you look at threats of withdrawal, which would take away two of the biggest trading partners, the U.S. is really moving in the opposite direction,” Lamar said.

So far in the opposite direction, in fact, that Helfenbein sees little hope for the deal.

“I believe NAFTA is going to blow up,” he said. Having attended various trade talks in Washington, Helfenbein said he’s gotten the sense that it’s a “no-win” situation with NAFTA. And he added, “It’s not so much that we’ll blow it up, but how about Canada and Mexico just walk away?”

One among the problems with the NAFTA renegotiations, is that it doesn’t consider what the supply chain actually needs.

“We’re all in favor of having NAFTA grow up and be a modern day agreement, but some of the things we’re asking for as a country are not practical and, frankly, not realistic,” Helfenbein said. “They’re not realistic in terms of people who are using the supply chain and what they want and need.”

The outlook for the rest of trade

With the RCEP looming (which is slated to be finalized early next year and represent 39 percent of the world’s gross domestic product, according to Helfenbein) and the TPP 11 likely to carry forward, experts believe the U.S. may be giving up its stronghold on trade.

“I think we’ve lost a lot of ground. We’ve lost ground as leaders,” Lamar said. “People would typically look to us to kind of set the tone, set the agenda, and that’s not happening anymore.”

Losing that ground has meant handing over some of the leadership to nations eager to take it. “Whether that’s China or somebody else remains to be seen,” Lamar said.

China, however, is positioning itself to be the winner.

“As we’ve pulled back, China has moved forward. We’ve ceded to China to take the lead in a lot of these trade deals, and we’re clearly falling behind,” Helfenbein added. “We’re hoping at the end of the day we won’t be too disruptive to ourselves. If NAFTA were to fall apart, it would be terribly disruptive to supply chains.”

China’s advancement in trade relations in conjunction with a domestic agenda that’s more of the protective ilk may not bode well for the U.S.

“If China becomes a more reliable partner or platform, then you start to see more China-centric activity where you might have seen more U.S. activity,” Lamar said. “You’re going to see companies increasingly doing local for local.”

In other trade news, the United States has been challenging the World Trade Organization, pointing out what it deems as weak rules and enforcement, and painting the trade body as more of a target than a tool.

“We’re creating a lot of problems down at the WTO,” Helfenbein said. “Maybe it will fix itself, maybe not. But it’s causing a lot of disruption.”

What can companies do?

Companies that want to be poised to handle whatever the next Trump move brings to trade, would be best served to set up a war room, where as many ‘what-ifs’ have been reviewed and planned for, Helfenbein said.

“For any company to be sitting out there with one trade strategy, you better hope that’s not the one that gets torn up with these revisions,” he added.

For Lamar, it’s about staying informed and involved—which is what helped bust the border adjustment tax.

“We don’t know when the next Tweet is going to come up that’s going to change some commonly held instruction about how trade works,” Lamar said.

Beyond Tweet patrol, companies should also be paying attention to what happens with tax reform.

“Whatever comes out of Washington in the tax debate, I think is going to be very critical, and you need to look at that in conjunction with trade policy,” Lamar advised. “Make sure your tax policy people and your trade people are talking to each other.”

The next thing to focus on in the coming year will be what the ongoing battle between the U.S. and China over intellectual property could mean for the apparel industry.

“If the administration finds that they can’t resolve those [intellectual property] concerns, that may create the opportunity for the administration to impose sanctions on China, which could prevent imports from China coming into the U.S.,” Lamar explained. “If those sanctions do get imposed, China may take the U.S. to the WTO, which could impact exports from the U.S. to China.”