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Latin America could win big in US-China trade war

Americas / 05-04-18 / by
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The US-China trade conflict is causing “unprecedented” flux in the political and economic environment, with far-reaching implications for import and export opportunities globally. Yet for other regions of the Americas, the spat could open new opportunities.

As China unveils its own list of US import goods potentially subject to tariffs, Donald Trump continues to lambast the East Asian nation for damaging Stateside commodity trade.

US trade representative Robert Lighthizer published on Tuesday the proposed list of 1,333 Chinese-made goods set for US$50bn worth of tariffs, including metals, machinery, electrical goods, semiconductors, oceangoing vessels, medical equipment, motor vehicles and weapons.

In response, China’s ministry of finance announced on Wednesday that 106 extra US commodities could soon face a 25% tariff. Among commodities on the Chinese tariff list are: corn flour, cotton, types of wheat, beef, orange juice, whisky, tobacco, industrial chemicals, and lubricants, as well as cars.

Despite fiery rhetoric from each political garrison, the wheels of administration move slowly on enactment: the White House has opened a public consultation on the tariff proposals, with a public hearing set for May 15, and further comments accepted until May 22.

Frank Samolis, co-chair of the international trade practice at Squire Patton Boggs, tells GTR: “We are going through an unprecedented level of change in the geopolitics of international trade, not just due to ‘America First’ policies, but also due to Brexit and the ratcheting up of trade regulation, among other reasons.”

Yet trade professionals need not necessarily fear imminent implementation of Trump’s proposals, as “the threat of tariffs has become somewhat of a negotiating tactic for the [US] administration”, in the words of Samolis.

His comments are echoed by Andrew Hunter, US economist at Capital Economics, who tells GTR that while there is “a serious risk of escalation” in the tit-for-tat tariff conflict, the proposed US tariffs are “likely to be watered down” if actually written into law.

Politicking aside, Latin America could now be emerging as a region of rare opportunity for commodity sourcing and international trade, in the wake of the uncertainty around US commodity flows, explains Samolis.

“There have been signs that Asia-Pacific would continue to deepen its trade relationship with Latin America and the Caribbean, as can be seen through the Pacific Alliance,” he says, referring to the Latin American trade bloc of Chile, Colombia, Mexico and Peru.

Global head of Mayer Brown’s international trade law practice Duane Layton notes that China already exports to the larger economies in South America, including Mexico and Brazil. This could see a boost as a result of the US-China row.

“There may be diversion of products,” he tells GTR, “If they can’t get into the United States, maybe they go into Mexico or other Latin American markets.”

As summer approaches, relations between South American nations and other regions seem to be warming. Negotiations between the EU and Mercosur – consisting of Argentina, Brazil, Paraguay and Uruguay – restarted again in May 2016, and parties are said to be nearing an agreement over tariffs and technical barriers to trade, among other matters.

With rising protectionism in US trade policy, renewed collaboration between nations in South America becomes increasingly crucial. For instance, Mexico, Peru and Chile are members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – the successor to the Trans-Pacific Partnership from which the US withdrew in January 2017 – connecting the Americas with Australasia. This January, the UK voiced desire to participate in the CPTPP post-Brexit.

“Latin America is therefore quite well placed to benefit from disruption in traditional trade flows,” argues Samolis.

Meanwhile, constructive trade talks between the US and China remain a very real possibility. To the surprise of some trade law professionals, the US lodged a complaint with the World Trade Organisation (WTO) on March 26 saying China “accords less favourable treatment to foreign intellectual property rights holders”. For Samolis, this shows that the US is “willing to constructively engage” with the WTO.

“For those involved in international trade, one of the biggest questions is how the WTO is going to cope with these disputes,” Samolis continues. “The WTO director-general has now come out calling for restraint and dialogue, but questions have arisen on whether the WTO will have the necessary teeth to deal with this level of escalation.”

The issue now awaits inspection, but is not listed on the agenda for the next WTO dispute settlement meeting on April 9.

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