News Summary 27 February 17

A summary of the most important trade news stories from the past week. This summary is emailed to our subscribers every Monday morning, along with the latest comment and analysis from The Channel Group. If you would like to receive this direct to your inbox, you can sign up at the bottom of this article or click here.

Good morning,

Tensions are have risen markedly over the last week in international trade –

  • Donald Trump is on the trade war path, as he seeks to operate outside of the WTO framework.
  • Mexico is ready to fight back – threatening a trade war of it’s own.
  • The German automotive industry is wading inn, urging the US not to be overly protectionist.
  • And the UK starts to play hardball with the EU over freedom of movement.

Best wishes,

Thomas Dempster

The Channel Group

News Summary

Trump to bypass WTO

The Trump administration is examining ways in which it can bypass the WTO and settle trade disputes outside the agreed mechanisms. The move puts the future of the WTO in  jeopardy, an organisation which the US jointly founded in 1995.

The news came to light as the Trump administration asked its Trade Representative to draw up a list of ways the US could sanction countries, like China, for what the US sees as unfair trade policy. This latest development will be seen as a way for the US to circumvent the WTO rules.  Mr Trump once labelled the WTO as “a disaster”, so this news comes as little surprise.

German automotive industry lobbies Trump

The German car industry is preparing to campaign against protectionism in the US. Industry leaders have been concerned about the rhetoric coming from Washington, especially possible new tariffs, which could damage the sector.

A spokesman for BDI said; “There are conversations about how we can explain in Washington how important the role of foreign trade investment, including German trade and investment, is in the US”.

Freedom of movement could end next month

Sources have suggested that restrictions could be placed on the movement of EU nationals to the UK as early as next month. Theresa May has imposed a deadline of the end of March for triggering Article 50 – with the real process of the UK leaving the EU starting after this.

However, a Government spokesman said; ” We’ve always been clear the reciprocal rights of citizens is a priority in our negotiations and an area we expect to resolve early on. The priority is working on getting EU leaders’ agreement to guarantee the rights of our citizens”.

‘Virtual Border’ seen as solution in Ireland

Enda Kenny, Ireland’s Prime Minister, met with President Junker in Brussels last week. High on the agenda was the border between Ireland and Northern Ireland. All parties would like to see a solution in place that did not disrupt either the positive soft-border in place currently,  or – most importantly – the peace.

Enda Kenny, Ireland’s Prime Minister, met with President Junker in Brussels last week. High on the agenda was the border between Ireland and Northern Ireland. All parties would like to see a solution in place that did not disrupt either the positive soft-border in place currently,  or – most importantly – the peace.

Under plans for a ‘virtual border’, most lorries would cross the border unchecked. The authorities would be notified about cargo details online. Any lorries that raised concerns could be stopped within a border zone, rather than at a checkpoint, therefore giving the impression of an open border.

The solution has been suggested by some as a possible model for the UK’s relationship with the rest of the EU as well.

Mexico Fights Back Over Border Wall

By Toby Illingworth

Mexico this week has seemingly had enough of the consistent attacks from the new President of the United States and has hit back against the rhetoric of the new Trump Administration, threatening a trade war with the United States.

President Trump is expected to sign an executive order as soon as Monday signalling his intention to renegotiate the North American Free Trade Agreement (NAFTA), the free trade agreement between Canada, Mexico and the United States.

Trump’s opposition to NATFA in part comes from the agreement’s US signatory, Bill Clinton, and he claims that it is responsible for ‘destroying American jobs, but has often failed to mention that the agreement was initiated by George H.W Bush. The agreement has significantly increased US exports to both Canada and Mexico, the US’s two largest trading partners.

The problem for Trump is that a renegotiation will potentially be more damaging for US jobs, especially in some of the states that supported him in November. The top five states for exporting to Mexico are: Michigan, Texas, North Dakota, Kentucky and Indiana, all of whom voted for President Trump at the election and all of whom could lose out significantly if barriers to trade are erected against Mexico.

In fact, withdrawing from NAFTA would cost the U.S. auto manufacturing sector alone an estimated 31,000 jobs, according to the Center for Automotive Research.

It remains to be seen whether President Trump’s administration can negotiate more favourable terms with trade partners, but if he fails, this could be catastrophic for the voters he claims to be supporting.

In addition to this, President Trump’s plans for a border wall and the insistence that Mexico will pay for it, through the imposition of tariffs on imports, has left a bitter taste south of the border.

Mexico’s foreign minister Luis Videgaray said that his country would respond to any tax levied by the US in kind and that they would target the regions most reliant on exports south of the border, such as Iowa, Texas and Wisconsin.

Mr Videgaray said: “Without a doubt, we have that possibility and what we cannot do is remain with our arms crossed. “The Mexican government would have to respond.” He continued that “Mexico believes in free trade” and that barriers to trade were “not our preference” but would be willing to use them if necessary to protect the Mexican economy.

Donald Trump must very quickly learn that now he is the President, small sound bites and comments made have a drastic impact on foreign relations. A trade war would not only be damaging for Mexico, but also for the United States and the industries so reliant on trade across the US southern border.

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Thomas Dempster

Thomas has a background in politics, having worked in Parliament for a number of years. He worked alongside a wide range of stakeholders from business, local and supra-national government, and charities on various projects.

Before this, he worked for GlaxoSmithKline and as a theatre producer. Thomas enjoys playing cricket, cycling, and reading.

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