As we all saw throughout the 2020 elections, Americans and those around the world anxiously awaited the results while international and domestic trade players planned for anticipated policy and regulatory changes to come in the short and long terms. For now, some things are here to stay. Flexibility is a must for maintaining the current trends within the international trade atmosphere. Trade relations with China and Vietnam as well as new tariffs on the horizon remain critical questions.
The next four years will undoubtedly require careful strategic planning with an emphasis on digital innovation for trade policy experts as COVID-19 continues to add an additional layer of complexity to operations while adjusting to a new administration and policy changes.
To help you navigate the future, Global Trade talked with Washington, D.C.-based law firm Miller & Chevalier’s international trade experts Richard Mojica and Dana Watts. They weigh in on the 2020 election outcome, how international and domestic trade lane shifts can be anticipated and what traders can do to prepare now for the near future.
“President Biden will likely continue a trade policy of protectionism,” Mojica says. “Biden’s approach would be more subtle than Trump’s, but his trade policy agenda is centered around the familiar themes of taking a hard line on China and boosting U.S. industries by increasing government purchases of U.S.-based goods and services. Further, although Biden would certainly seek to restore trade relations with long-time allies, he has signaled that his administration would focus on domestic investments before pursuing any new trade agreements. That probably includes not pursuing Phase II of the U.S.-China Agreement, in part due to growing animosity between the countries.
“On the topic of tariffs, Biden has not yet pledged to remove the tariff regime he inherited from Trump and is not likely to do so without getting something in return that would satisfy his base supporters,” Mojica adds. “Biden has also vowed to use other tools to keep China at bay, which may include economic sanctions, the tightening of export controls, anti-dumping investigations, restrictions to foreign investment and investigations into human rights abuses.”
The question on the minds of global traders is what can be done now to prepare for what’s to come and how proactive measures can solidify operations for the future. Supply chains experienced new levels of disruption throughout 2020, requiring changes in established production locations and tapping into new market opportunities for outsourcing. However, these moves do not come without a cost in some form, and right now, the right move is hard to determine beyond what has already been implemented.
It’s important to note that prior to Donald Trump’s departure from the White House, the U.S.-China deal still remained a key issue for many American manufacturers. With Biden now officially sworn in, relations with China are a constant question.
“For the last 2-3 years, many companies with supply chains involving China have moved all or some production out of China and into Vietnam, Malaysia and elsewhere in Asia,” Watts explains. “U.S. companies are also considering moving production to Mexico because of its proximity to the United States and the potential cost-savings associated with the U.S.-Mexico-Canada Agreement (USMCA) implemented on July 1.”
President Biden’s “Made in America” plan–a $400 billion, four-year increase in government purchasing of U.S.-based goods and services–will further incentivize companies to take a closer look at sourcing from the U.S., where there is capacity. “Still, we continue to hear from companies that China’s supply chain ecosystem is unrivaled, so they are experiencing growing pains as they ramp up production in other countries,” Mojica notes.
Having previously served as a U.S. Customs Headquarters attorney, Mojica predicts that under the Biden administration, tariff compliance enforcement from U.S. customs will most likely continue and even become more significant. Not only does this increase the chance for penalties and investigations but also the enforcement of USCMA and importer auditing protocols. Starting from the inside out, USMCA mirrors NAFTA while adding drastic changes to specific sectors, where operating procedures are not a “one-size-fits-all” approach. For many companies, USMCA requires a careful comparison and evaluation from compliance to anticipated penalties.
“Companies that seek to benefit from cost savings under the USMCA must have a compliance infrastructure in place to verify that its products qualify for preferential treatment under the agreement, Mojica says. “Based on our experience working with multinational companies, developing adequate internal controls requires an effort that may involve stakeholders in various departments, including procurement, finance, supply chain and legal. U.S. Customs afforded companies through the end of 2020 to get up to speed, but that grace period has since expired and will be followed by USMCA audits.”
The Phase One trade deal is an additional key topic that companies are grappling with. Which strategic planning efforts will support business and whether there will be additional conflict between the already strained relationship with China are in question. Future agreements are at a standstill as Phase One requirements have yet to be fulfilled on China’s end and show no progress.
The question is: Now that Biden is the 46th U.S. President, what will the Phase One Deal look like?
“Biden has criticized the Phase One deal for not addressing Chinese subsidies and support for state-owned enterprises, cybertheft, and other unfair practices,” Watts points out.
Mojica and Watts both expect an uptick in investigations into forced labor in the supply chains of companies that import merchandise into the United States.
“The U.S. government has taken a keen interest in human rights abuses around the world, and it is charging companies to ensure that there is no forced labor in their supply chains,” Mojica says. “In response to the rise in U.S. Customs-led investigations and enforcement cases concerning imports made with forced labor, companies are taking steps to enhance their supplier due diligence efforts.”
Short-term resolutions are bleak, and the inevitable shift in policy adds more of a strain on companies aiming to determine what preparations are within their control. Specific strategies can support forward-thinking approaches in the interim, but without concrete provisions, the future does not look favorable for peaceful international relations but rather growing tensions, which are already being felt.
The future of policies in place and the possibilities for policy implementation have yet to be fully felt under the Biden administration. The future of trade could be completely different from what companies are currently navigating on a domestic and international scale in the coming weeks and months. Nevertheless, companies would do themselves a favor by extending strategic approaches and ensuring compliance while anticipating another year of change.
Richard Mojica is a member of Washington, D.C.-based law firm Miller & Chevalier, where he counsels U.S. and international companies on how to minimize the cost of importing merchandise into the United States through strategic customs planning and duty-savings programs.
Dana Watts is counsel of Miller & Chevalier’s International Practice, focusing on customs law. She advises clients with all aspects of import compliance.