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By Caroline Grady 24-01-2020
In: podcasts | Economics Geopolitics

Reasons For Concern In Two New Trade Deals (Cato Daily Podcast)

(11 min listen)
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Summary (You can listen to the podcast by clicking here)

• Cato analysts review the Phase 1 US-China deal and the USMCA that was passed in the Senate last week. Phase 1 is a mixed bag. It prevents further escalation in tariffs and potentially removes trade barriers on agriculture, if it works. But it keeps nearly all existing tariffs in place.

• It’s also more about managed trade and guaranteed purchasing, which is a bad precedent, not to mention whether the commitments are even feasible. On dispute resolution, the US can still unilaterally impose future tariffs under the deal.

• Phase 2 is expected to deal with the deeper structural issues creating trade distortions, namely subsidies and SOEs, alongside lowering existing tariffs. Given Phase 1 took nearly two years to achieve, it is unlikely that any near-term progress is made on Phase 2. The November US election also reduces any likelihood of progress this year.

• USMCA excludes any clause to prevent future imposition of Section 232 tariffs (these currently cover steel and aluminium where partial exemptions were granted to Mexico and Canada). There is nothing in the deal to prevent the US from threatening Mexico and Canada with future tariffs. As such, uncertainty remains.

 

Why does this matter? Trade tensions were a significant source of market uncertainty during the past two years and led to a slump in global trade, investment, and manufacturing. They also sparked fears of a global recession. Confidence has now improved, but signs that tensions could re-escalate would quickly reverse this.