New Articles

The Phase One Deal: How We Got Here And What Is Next

phase one

The Phase One Deal: How We Got Here And What Is Next

President Trump announced that the United States and China had reached a partial “Phase One” trade deal in mid-October, signaling a pause in the trade tensions that have steadily grown over the past two and half years.  While the precise goals of the President’s trade action against China have always been vague, there was an unquestionable desire to change certain structural issues of the Chinese economy, particularly with the country’s intellectual property and forced technology practices.  

To put the proposed Phase One deal in its proper context, this article breaks down (1) the various stages of escalation since President Trump took office, (2) what’s known about the contents of agreement, and (3) the potential risks that could derail the deal from being signed.  

The Escalation of the Trade War

The President’s most high-profile actions against China have been his use of long-thought-defunct trade authority, Section 301 of the Trade Act of 1974 (“Section 301”).  Section 301 grants the President the authority to impose tariffs on countries if it determines that the acts, policies, or practices of a country are unjustifiable and burden or restrict U.S. commerce.  

Following a lengthy investigation, the Office of the U.S. Trade Representative (“USTR”) officially determined in March 2018 that China’s policies result in harm to the U.S. economy.  Simultaneously, President Trump signed a Presidential Memorandum outlining a series of remedies that his Administration would take in response to these findings, most notably the imposition of tariffs.  

President Trump’s Section 301 tariffs currently cover most products imported from China, after having been rolled out in four different lists:  

-List 1 of the Section 301 tariffs went into effect July 2018 and imposes a 25 percent tariff on $34 billion worth of goods from China.  

-List 2 went into effect August 2018 and imposes a 25 percent tariff on $16 billion worth of goods.  

-Following China’s retaliatory tariffs on Lists 1 and 2, the United States announced List 3, which began imposing a 10 percent tariff on $200 billion of Chinese products in September 2018.  The List 3 tariffs were increased to 25 percent after negotiations between the two countries fell apart.

-List 4 could hit almost $300 billion more of Chinese products.  Part of the list (“List 4a”) went into effect on September 1 and imposes 15 percent tariffs on $112 billion of Chinese products.  The U.S. is scheduled to impose 15 percent tariffs on the remaining $160 billion of the list (“List 4b”) starting December 15.  

The Trump Administration has taken aggressive action to increase pressure on China that goes well beyond the Section 301 tariffs.  Since President Trump took office, he has targeted China’s steel and aluminum industries through global tariffs on these products. He has (at least temporarily) sanctioned major Chinese tech firms or restricted their ability to do business with the United States.  He has sanctioned Chinese individuals and entities connected to North Korea and others related to the treatment of the Uighurs in western China. He signed into law a major expansion of authority for the Committee on Foreign Investment in the United States (“CFIUS”), which has immediate and future implications for Chinese investment in the United States. 

Additionally, the Administration has moved closer to Taiwan. President Trump has authorized significant military sales to Taiwan, and as President-elect, he took a call from Taiwan’s leader Tsai Ing-wen, the first such call by a U.S. President or President-elect since the 1970s. The Administration has either directly or indirectly made clear that these restrictions, sanctions, and geopolitical relationships can be used as points of leverage in the trade negotiations.  

The Phase One Deal

Many details about what is included in the Phase One deal remain unknown.  In announcing the deal, President Trump said “We have a great deal. We’re papering it now.  Over the next three or four or five weeks, hopefully, it’ll get finished. A tremendous benefit to our farmers, technology, and many other things — the banking industry, financial services.”  As the two sides “paper” the agreement into finalized text, what is known about the deal has come largely from statements made by both sides. We know that as part of the deal, the United States will not pursue plans to increase the List 1-3 tariffs from 25 percent to 30 percent. We also know China plans to make large purchases of U.S. agricultural products.  

There are reports the Phase One deal could also delay or cancel the planned List 4b tariffs. Other reports suggest that China is seeking additional eliminations or reductions of the Section 301 tariffs.  

As for the structural changes to the Chinese economy sought by the Trump Administration, it seems as though they could be mentioned in the Phase One deal, but the real work will be addressed in subsequent phases.  

What Comes Next

The stars were aligning for President Trump and President Xi to sign the Phase One deal at the Asia-Pacific Economic Cooperation (“APEC”) meetings in Santiago, Chile this week.  Unfortunately, the APEC meetings were unexpectedly cancelled due to protests in the country, highlighting that a few weeks can feel like an eternity for sensitive trade talks.  

Assuming the U.S. and China can find another location, there are still risks out there that could prevent the deal’s signing.  

One big risk to the deal is the events unfolding in Hong Kong. The Trump Administration has been notably quiet on the protests, outside of President Trump expressing his faith in President Xi to satisfactorily resolve the situation.  The strongest statement from the Administration came from Vice President Pence, who recently said, “[T]he United States will continue to urge China to show restraint, to honor its commitments, and respect the people of Hong Kong.  And to the millions in Hong Kong who have been peacefully demonstrating to protect your rights these past months, we stand with you.”

According to multiple reports, President Trump pledged to Chinese President Xi Jinping that his Administration would remain quiet on the Hong Kong protests throughout the trade talks.  However, the Administration’s hand could be forced if the protests escalate into more sustained violence or if, as is expected, Congress passes legislation in support of Hong Kong with veto-proof majorities.  

Another risk is more vocal opposition from so-called “China hawks” that are dissatisfied that Phase One doesn’t get to the heart of the problems they have with China’s economic practices.  Senate Minority Leader Chuck Schumer (D-NY) cautioned the President that he “shouldn’t be giving in to China unless we get something big in return.” Senator Marco Rubio (R-FL) doubted China’s commitment to the deal long-term, saying, “I do believe that [China] will agree to things they don’t intend to comply with.” There are reports that China hawks within the White House are also pushing the President to reject the deal, notably Director of the Office of Trade and Manufacturing Policy Peter Navarro.  

A deal to end or pause the trade tensions between the United States and China would provide the private sector with more certainty as they make decisions about 2020 and beyond.  The Phase One deal looks to provide at least a pause, but geopolitical actions or domestic opposition could still derail the agreement before it is signed.   

___________________________________________________________

Rory Murphy is an Associate at Squire Patton Boggs, where his practice focuses on providing US public policy guidance, global cultural and business diplomacy advice that helps US and foreign governments and entities with doing business around the globe.

India

INDIA TARIFFS COULD DENT GAINS FROM CALIFORNIA’S BUMPER ALMOND CROP

Celebrating Diwali in India with California almonds

Fall festivals and the wedding season are already ramping up in India. There’s Janmashtami which celebrates the birth of Lord Krishna, the festival for Lord Ganesha, the elephant-headed God of the Hindus, and Diwali, the famously elegant festival of lights, and many more throughout the various regions of India. Almonds are a popular gift for such occasions.

The timing is perfect for California’s almond growers. Across California’s lush green valleys, almonds are being harvested from orchards, loaded on trucks and delivered to mills where the essential nut will be separated from its shell and hull. Almond traders in India await the arrival of the best quality shipments for the festival season demand beginning early September.

Almonds have deep roots in India

Almonds in India date as far back as prehistoric times. Ancient Indian Sanskrit texts on Ayurveda, the Indian traditional medicine, detail the role of almonds and other nuts in providing health benefits. Almonds were exclusive and prestigious health supplements for the rich and royal during the Mughal rule from the 15th to the 19th century.

To this day, consuming raw almonds on a daily basis as a standalone morning chew, added to milk shakes, as oils or as a garnish to dishes, is widely prevalent in India and elsewhere on the sub-continent.

Indian consumers choose from types of almonds available in Indian street markets and grocery stores – Mamra, Gurbandi and California almonds. California almonds command a majority market share due to its wide availability and lower price. Sweeter in taste, California almonds are favored in Indian cooking and garnishing.

Tariffs could dampen California’s bumper crop

California produces 80 percent of the world’s almonds. Americans consume just over a third of California’s harvest. The remaining 67 percent is exported to other countries. California almond growers are on track for a bumper crop this year, producing a record 2.5 billion pounds of almonds, which would be a nine percent increase of over last year’s crop.

TradeVistas- Global almond production

California growers have reason to worry about access to one of their biggest export markets. The Indian government increased tariffs on U.S. shelled almonds by 20 percent and non-shelled almonds by 17 percent in June. The move came days after the Trump administration announced plans to remove India from eligibility for key trade privileges under the U.S. Generalized System of Preference (GSP) program. India was the biggest beneficiary under the GSP program, exporting $5.6 billion worth of Indian products to the United States duty-free in 2017.

The latest tariff increase by India comes on top of an increase in customs duties last year and in addition to a 12 percent tax the Indian Ministry of Finance imposes on both domestic and imported almonds. The U.S. Department of Agriculture forecasts the increased cost will cause a five percent drop in U.S. almond exports to India, impacting the 6,800 almond growers in California, who are mostly small to medium-size, family-run enterprises.

According to a study by the Almond Board of California, the almond industry generates more than 100,000 jobs in California, mostly in the Central Valley. Almond growers are California contribute about $11 billion annually to the state’s economy.

“Tomorrow Begins Today”

India has become such an important market for California almond growers that the state almond board has an office in New Delhi with a $5.5 million annual budget.

In July of 2015, the Almond Board of California launched a successful marketing campaign in India, promoting the lesser-known nutrition benefits of almonds such as heart health, weight management and diabetes management.

The campaign, called “Tomorrow Begins Today,” reached 4.05 billion broadcast impressions and is credited with helping grow the snack category by 100 percent.

TradeVistas- Export destinations for U.S. almonds

Tariffs are a tough nut to crack

In the face of new tariffs and competition from Vietnam, Hong Kong, Australia and Chile, California growers need to crack open new markets.

Unfortunately, the tariff wars are being fought in another of California’s important export markets – China. In 2018, China imposed a 50-percent retaliatory tariff on almond imports from the United States. U.S. exports declined by 33 percent from August 2018 to April 2019 compared with the same period of the prior year, according to Almond Board of California.

Higher tariffs could ultimately cost major U.S. fruit and nut industries over $2.6 billion per year in exports, according to a report by Daniel A. Sumner, an economist with the University of California Davis’ Department of Agricultural and Resource Economics. The economic blow could rise to as much as $3.3 billion because of lost market share overtaken by lower-priced alternatives from competing exporters.

Australia has taken advantage of their free trade agreement with China to expand exports. The free trade agreement between the two countries grants zero tariffs on almonds and other commodities starting January 1, 2019. Australian producers recorded a 20-fold increase in exports to China this year, according to the Australian Board of Almonds.

Nothing to celebrate

Retaliatory tariffs imposed by India will shortchange the gains hoped for by California almond growers who are expecting a bumper harvest this year, but who also face tariffs in another top export market: China.

Indian importers might look for other sources but no other global exporter can match the volume of production by California’s almond growers. As long as India’s appetite for sweet almonds continues to grow, Indian consumers will pay a higher price for U.S. almonds at their upcoming celebrations.

PBhatnagar

Pragya Bhatnagar is a Research Associate with the Hinrich Foundation where he focuses on International Trade Research. He is a Hinrich Foundation Global Trade Leader Scholar alumnus, earning his Master’s degree in International Journalism, specializing in Business and Financial Journalism, from Hong Kong Baptist University. He received his bachelor’s degree in Economics from Lucknow University, India.

This article originally appeared on TradeVistas.org. Republished with permission.

Apricot Market in Eastern Europe – The Growth of Russian Imports Is Losing Momentum

IndexBox has just published a new report: ‘Eastern Europe – Apricots – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The revenue of the apricot market in Eastern Europe amounted to $318M in 2018, reducing by -5.8% against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). The market value increased at an average annual rate of +3.5% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded in certain years. The pace of growth appeared the most rapid in 2013, when the market value increased by 32% year-to-year. In that year, the apricot market reached its peak level of $361M. From 2014 to 2018, the growth of the apricot market remained at a lower figure.

Production in Eastern Europe

In 2018, the amount of apricots produced in Eastern Europe stood at 245K tonnes, picking up by 2.6% against the previous year. The total output volume increased at an average annual rate of +2.4% from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded throughout the analyzed period. The growth pace was the most rapid in 2013, when the output figure increased by 56% year-to-year. In that year, apricot production reached its peak volume of 281K tonnes. From 2014 to 2018, apricot production growth failed to regain its momentum. The general positive trend in terms of apricot output was largely conditioned by a temperate expansion of the harvested area and a noticeable growth in yield figures.

Exports in Eastern Europe

In 2018, exports of apricots in Eastern Europe amounted to 9.6K tonnes, shrinking by -17% against the previous year. The total exports indicated a slight growth from 2007 to 2018: its volume increased at an average annual rate of +1.3% over the last eleven years. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the apricot exports decreased by -36.3% against 2016 indices. The growth pace was the most rapid in 2016, when exports increased by 51% y-o-y. In that year, apricot exports attained their peak of 15K tonnes. From 2017 to 2018, the growth of apricot exports remained at a lower figure.

In value terms, apricot exports stood at $9.2M (IndexBox estimates) in 2018. In general, apricot exports, however, continue to indicate a slight drop. The growth pace was the most rapid in 2016, when exports increased by 44% y-o-y. Over the period under review, apricot exports reached their peak figure at $17M in 2013; however, from 2014 to 2018, exports stood at a somewhat lower figure.

Exports by Country

In 2018, Bulgaria (2.4K tonnes), Hungary (2.3K tonnes) and Moldova (1.9K tonnes) represented the largest exporters of apricots in Eastern Europe, constituting 68% of total export. It was distantly followed by Lithuania (1K tonnes), Poland (548 tonnes) and the Czech Republic (502 tonnes), together generating 22% share of total exports. Belarus (424 tonnes) followed a long way behind the leaders.

From 2007 to 2018, the most notable rate of growth in terms of exports, amongst the main exporting countries, was attained by Bulgaria, while the other leaders experienced more modest paces of growth.

In value terms, the largest apricot markets in Eastern Europe were Hungary ($2.9M), Bulgaria ($1.5M) and Moldova ($1.4M), together accounting for 62% of total exports.

Export Prices by Country

The apricot export price in Eastern Europe stood at $962 per tonne in 2018, declining by -4.3% against the previous year. Over the period under review, the apricot export price continues to indicate a measured downturn. There were significant differences in the average export prices amongst the major exporting countries. In 2018, the country with the highest export price was the Czech Republic ($1,550 per tonne), while Belarus ($363 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of export prices was attained by the Czech Republic, while the other leaders experienced mixed trends in the export price figures.

Imports in Eastern Europe

In 2018, imports of apricots in Eastern Europe amounted to 95K tonnes, shrinking by -10.7% against the previous year. The total imports indicated a prominent growth from 2007 to 2018: its volume increased at an average annual rate of +5.8% over the last eleven year period. The trend pattern, however, indicated some noticeable fluctuations being recorded throughout the analyzed period. Based on 2018 figures, the apricot imports increased by +45.9% against 2016 indices. In value terms, apricot imports amounted to $92M (IndexBox estimates) in 2018.

Imports by Country

Russia was the key importer of apricots in Eastern Europe, with the volume of imports resulting at 53K tonnes, which was near 56% of total imports in 2018. Poland (9.9K tonnes) ranks second in terms of the total imports with a 10% share, followed by the Czech Republic (8.2%), Romania (8.1%) and Bulgaria (5%). The following importers – Belarus (2.4K tonnes), Slovakia (2.2K tonnes) and Ukraine (2.1K tonnes) – together made up 7% of total imports.

From 2007 to 2018, average annual rates of growth with regard to apricot imports into Russia stood at +3.8%. At the same time, the Czech Republic (+10.9%), Romania (+10.6%), Slovakia (+10.2%), Bulgaria (+10.2%), Belarus (+8.5%), Poland (+7.7%) and Ukraine (+3.1%) displayed positive paces of growth. Moreover, the Czech Republic emerged as the fastest growing importer in Eastern Europe, with a CAGR of +10.9% from 2007-2018. Slovakia (-1.5%), Bulgaria (-3.3%), Romania (-5.4%), the Czech Republic (-5.6%), Poland (-5.8%) and Russia (-19%) significantly weakened its position in terms of the global imports, while the shares of the other countries remained relatively stable throughout the analyzed period.

In value terms, Russia ($42M) constitutes the largest market for imported apricots in Eastern Europe, comprising 46% of total apricot imports. The second position in the ranking was occupied by Poland ($14M), with a 15% share of total imports. It was followed by the Czech Republic, with a 12% share.

Import Prices by Country

The apricot import price in Eastern Europe stood at $964 per tonne in 2018, rising by 3.8% against the previous year. In general, the apricot import price, however, continues to indicate a slight slump. The growth pace was the most rapid in 2010, when the import price increased by 30% y-o-y. In that year, the import prices for apricots reached their peak level of $1,258 per tonne. From 2011 to 2018, the growth in terms of the import prices for apricots remained at a somewhat lower figure.

Import prices varied noticeably by the country of destination; the country with the highest import price was Slovakia ($1,530 per tonne), while Bulgaria ($358 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of import prices was attained by Slovakia, while the other leaders experienced mixed trends in the import price figures.

Source: IndexBox AI Platform