Here’s What COVID-19 Means for International Trade
| March 23, 2020
By: Kristen Rupert
COVID-19 is affecting international trade. Here’s an update on the United States-Mexico-Canada Agreement (USMCA), air freight, tariffs, Buy American, DPA, export restrictions and China’s recovery.
USMCA—The US Trade Representatives informed Congress that the USMCA (new NAFTA) will come into force June 1. This ten-week time frame is ambitious and and is causing concern, particularly among companies that manufacture automobiles or auto parts. The US, Canada and Mexico need to agree on regulations that govern rules of origin for autos. Given the supply chain disruption caused by COVID-19 and the inability of negotiators to meet in person, there may need to be an adjustment period for the auto sector to come into compliance with the USMCA.
CARGO THAT MOVES BY PASSENGER AIR—With the number of commercial airline flights drastically reduced because people aren’t traveling, companies that typically ship exports or receive imports or parts by air are struggling to find other distribution channels. Availability is limited and cost is a factor. Experts estimate that 50 percent of worldwide air freight is tied to passenger aircraft.
TARIFF RELIEF—The US lifted tariffs on a number of medical device, medical equipment and pharma product imports that are considered critical to the US COVID-19 response. Some trade professionals are pressing for tariff relief to be applied to a wider variety of medical products. US tariffs in 2017-19 resulted in a significant decrease of imported medical products from China, while demand for such products increased. Given the global economic impact of the COVID-19, some members of Congress are pushing for general tariff relief for a variety of US industry sectors.
BUY AMERICAN – The White House is expected to issue an Executive Order requiring government offices—Health and Human Services, Department of Defens and Veterans Department—to buy only US medical and pharma products. The goal is to bring supply chains back to the US. Currently the US imports a significant number of pharma and medical products from Europe, India, Mexico and China. Many US and global pharma and medical companies are concerned about the Buy American legislation, believing that it will harm companies, have a negative impact on US jobs, and disrupt global supply chains that are delivering critical medical products and treatments. Some public health experts believe that the COVID-19 is best addressed by global cooperation, not nationalism.
DEFENSE PRODUCTION ACT—President Trump announced he will invoke the DPA in order to protect against possible medical supply shortages and ensure that the US “has the health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators.” This will speed up manufacturing and distribution of emergency medical supplies and equipment.
EXPORT CONTROLS—Efforts are underway to ensure that the US and other countries do not enact stringent new export restrictions on medical devices and equipment. Some governments have already tightened export controls and there’s concern that further supply chain disruptions will hamper the global response to the pandemic.
CHINA—Reports indicate that China and other Asian countries are rapidly recovering from COVID-19. Companies expect to be back near capacity within 30 days. Production and shipping are quickly coming back on line. In fact, there’s some concern that the US may have port bottlenecks once China shipments return to a new normal. China is still important to the US, both as a source of products and as a market for US manufactured goods and services. However, COVID-19 has accelerated the diversification of supply chains as companies across the globe move away from heavy dependence on China. A US-China Phase 2 trade deal continues to be a goal, although the negotiating timeline is now significantly delayed.