China & European Tariff Update Plus Info onSourcing & the Craft Beverage Mod Act

China Tariffs

The WSJ reports that the U.S. and China are close to a trade agreement, but President Trump isn’t yet ready to sign off on the deal. It was initially reported that the “Phase 1” trade deal would roll back some of the tariffs the countries have placed on each other’s products, but more recent reports indicate the administration is not ready to roll back any tariffs until “Phase 2”. “Phase 1” may only eliminate the new tariffs the U.S. has announced would become effective on December 15. President Trump has threatened to “substantially raise” tariffs on China if a deal is not reached.

In another sign of progress toward a “Phase 1” deal, China yesterday lifted its ban on American poultry after the USDA announced a similar measure that will allow Chinese poultry into the U.S., a hopeful sign that the two sides have made progress on the recent snag in negotiations over farm purchases.

While the future of a Phase 1 deal remains uncertain, it is clear that competition between China and the US on the world stage is here to stay. The future of both economies ties very directly to their ability to develop new rules for their trading relationship that balances needs on both sides for the long term. Meanwhile the most recent annual report from the U.S.-China Economic and Security Review Commission indicates that the trade war with China is having little positive impact on resolving key trade issues with the country.

At a recent CONECT event in New England, Peter Friedmann, CONECT’s counsel in D.C., shared his thoughts on the future of these tariffs. He believes that support in Congress for tariffs on China is bipartisan. All want to appear tough on China, making any substantial rollback of previous measures difficult at best. A “Phase 1” deal may include some token measures in the near term, leaving open the prospect that a “Phase 2” will be the “great deal” the administration has promised.

Quote of the day from a recent Wall Street Journal piece comes from Ben Hackett at Hackett Associates: “Industry planning is in a state of confusion with the on-again, off-again tariff increases and the widening of trade disputes.”

European Tariffs

Reuters reports that, ahead of today’s deadline, European Union officials expect President Trump to delay for six months a decision on whether to slap tariffs on EU auto and parts exports.

CBMA – Craft Beverage Modernization Act

Important to our wine and spirits folks! At a recent event in the Pacific Northwest, we learned that resources on the ground in D.C. believe CBMA will get renewed retroactively next year once it gets attached to some trade bill or another. Good news for folks that have benefited from refunds related to CBMA tax credits this year.

Sourcing, Resourcing & Near Shoring

While uncertainty related to tariffs for product made in China is driving some companies to resource in other locations in Eastern Europe, Southeast Asia and North / South America, it’s not as easy to move production out of China as some may believe. At a recent trade event, one sourcing expert described the recent trend to shift production away from China to new sources in Eastern Europe, Southeast Asia, Canada and Mexico as evolutionary vs. revolutionary. Production capacity, lead time adaptation and internal bandwidth are just a few of the key challenges that often make the transition a slow progression. While Janel’s resources in Southeast Asia, Canada and Mexico have seen a measurable uptick in activity, China still remains a key base of production. We are also hearing that the China tariffs have created more flexibility with respect to first cost negotiation with suppliers in China. Reach out to your Janel representative for a list of tips on resourcing or to help cost model options as your company considers its resourcing/near-shoring options.

Side note: the WSJ reported this week that U.S. imports of footwear from China fell 8.6% in September while footwear imports from Vietnam rose 11.1%