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Posted on April 30, 2020
Companies mapping out re-start plans post-COVID-19 face a variety of challenges on the international trade front. Disrupted global supply chains, extensive shutdowns of factories in Mexico, tighter export controls on products destined for China, and high tariffs on imports from China and Europe continue to vex businesses.
Supply Chains – Supply chain disruption began in January when factories in China and Europe shut down. COVID-19 then hit most major economies and stay-at-home orders closed businesses. Shipping capacity by sea and air was reduced. Demand for medical supplies and PPE soared as did consumer hunger for toilet paper and food staples. Now, as the world eases back into a new normal, we will likely see companies shifting to less lean manufacturing, carrying larger inventories, reducing product lines, sourcing from diverse international markets, lessening dependence on China, re-shoring, and adjusting to much longer lead times for parts.
Mexico Strict Closure Laws – Mexico has severely limited the industries considered essential. Many sectors considered essential in the US—health care, food, agriculture, automotive, defense, aerospace, ICT and Heating/Ventilation/Air Conditioning—are not yet classified as essential in Mexico. As a result, US companies that have long been dependent on Mexico suppliers or who have factories in Mexico cannot access critical components. US government officials are working closely with the Mexican government to develop a solution to this challenge though relief may not come soon.
Export Controls on China – The US announced new export control restrictions on some products sent to China that might ultimately be used by the Chinese military. Among the products subject to the new restrictions are semiconductors, aerospace components and sensors. Many more US companies will be required to get export licenses in order to ship to China. This is a new rule and likely represents a significant policy change for US-China trade.
Tariffs – US industry continues to press the White House for tariff relief, especially now that many companies are struggling financially as a result of the coronavirus crisis. Although tariffs on some medical supplies have been lifted, many other supplies deemed critically important for the medical industry, produced in China and elsewhere, have not been given tariff relief. The US has put in place a 90-day delay on some tariff collections. The Trump Administration is considering a pause on all new tariffs according to this week’s Wall Street Journal.