Attorney: 'Trade Deficit Is the Scorecard'
Trade lawyers at Thompson Hine told clients and stakeholders that the old approaches to lobbying for North American trade don't work on the Trump administration. Don't try arguing that sourcing in Mexico makes your products more price competitive. Don't explain that the three countries' manufacturing supply chains are integrated. Don't tell them that 60% of the value of the Mexican car was in U.S. parts exported to the assembly plant. Don't try to argue that a 25% tariff on imports from Mexico and Canada will cause inflation. "They don't want to hear, 'It's going to cost more,' said Dan Ujczo, a senior counsel at the law firm. "'We have invested x amount of dollars, and here are the jobs in the United States,' that’s what they want to hear."
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Ujczo said business executives think some of the tariffs are threats, and won't happen, and they think "we've lived through tariffs before."
"This is going to be different," he warned during a webinar hosted Feb. 4. "What we saw this past weekend is just one piece of the puzzle."
He said businesses that import from any country that has a trade deficit in goods with the U.S. -- and that is most countries -- need to worry that tariffs could be used against those trading partners. "The trade deficit is the scorecard," he said.
The U.S. doesn't have a trade deficit with most of its free trade partners, including Morocco, Chile, Australia, Colombia, Peru, Honduras, El Salvador, Guatemala and the Dominican Republic. The U.S. also exports more goods to than it receives from Haiti, Jamaica, Bahamas, the U.K., Brazil, Qatar, Kuwait, Oman, and the United Arab Emirates, most former Soviet Republics and many countries in Africa -- though its trade volume with places like Kazakhstan and Rwanda is very small.
Although the U.S. imports far more from the EU than it exports to the bloc, it does have a trade surplus with the Netherlands, Belgium, Croatia, Lithuania, Latvia, Luxembourg and Malta.
And, of course, if the U.S. uses tariffs for reasons unrelated to trade, almost any country could be a target -- like Colombia.
Ujczo said that President Donald Trump will impose a global tariff, which he expects will be levied at no less than 10%. "These are designed to reduce trade deficits," he said, adding that the message from the president will be: "tell us how you’re going to reduce our trade deficit; we’ll keep the tariffs on until we see the numbers move."
The trade deficit and its link to a global tariff is in the America First Trade Memo, which directs the Treasury Department to produce a report by April 1. Ujczo said some of these reports may come before that deadline, and he thinks changes to the Section 232 action could be first, and that Canadian and Mexican metals could be hit again with the levies before April.
Also on Canada and Mexico, Ujczo said it's not clear to him whether the goal of the threats of 25% tariffs now is to get Canada and Mexico to make more concessions in USMCA -- which he said would be very difficult for those countries, politically -- or to get Mexico and Canada to agree that autos that don't meet the rule of origin will face a higher tariff than 2.5%. Ujczo said Japanese automakers have decided that complying with USMCA is too hard for their Mexican models: "We’ll eat the 2.5% duty." He expects that will no longer be an option.
Ujczo also noted that the 10% tariff on Chinese products is based on substantial transformation, which CBP has a lot of leeway in determining. He said if you have Mexican manufacturing with Chinese inputs of goods that were on list 4B of the Section 301 actions, and therefore, have not yet faced that scrutiny, you should be examining your supply chain.
Also on the topic of scrutiny, Ujczo warned that Chinese suppliers may offer to lower the value number for the goods you're importing from them, so that you pay less in tariffs -- and you shouldn't accept that offer. He said if you've brought similar items in before at a higher valuation "the computers in the sky" will flag that. "That’s not going to get cleared, and you're going to have a lot of problems," he said.
Businesses should be examining contracts, particularly changed government circumstances and force majeure clauses, so they know who's responsible for paying tariffs -- even if you're importing from a country that hasn't been hit yet.
If you export, Ujczo said, he heard Mexico has a list of 500 tariff lines for a retaliation action, and those goods would rotate off with other goods coming on in future months. "You don’t know if you're ever safe" with that carousel approach, he said.