Trade uncertainty clouds supply chain planning

Businesses need greater policy stability and predictability for long-term investment and supply chain planning, but continued shifts in US trade policy are fueling uncertainty, says Douglas Irwin, a professor of economics at Dartmouth College in New Hampshire.

Irwin made the comments on Wednesday at a media briefing with Port of Los Angeles Executive Director Gene Seroka, discussing tariffs, global commerce and the changing trade landscape.

Responding to a question from China Daily about continuing United States-China dialogue and tariff adjustments, Irwin said policy predictability is essential for businesses considering long-term investments.

"Businesses absolutely need that predictability of the business environment to make medium-term and long-term investments," he said.

Trade tensions between China and the US intensified after Washington imposed sweeping tariffs last year. Although both sides have since taken steps to ease tensions and continue dialogue, uncertainty over future trade policy remains.

Irwin described the current US-China trade relationship as relatively stable but fragile.

"We're now stabilized, but we're in sort of this uneasy truce," he said. "In terms of restoring US-China trade, I think it's going to be difficult, precisely because we don't have assurance that that truce will hold."

Companies do not know whether the US will maintain current tariff levels or renew pressure on China after completing other trade negotiations, including the review of the US-Mexico-Canada Agreement, he added.

"We just don't know, and that's going to be a deterrent to reinvesting in China or relying on China for imported goods, as opposed to going to Vietnam or another Southeast Asian country, or maybe even more locally, Mexico, for long-term sourcing," Irwin said.

Businesses therefore have little choice but to diversify their supply chains and hedge against further policy changes, he said.

The US Trade Representative has proposed new Section 301 duties linked to other economies' enforcement of prohibitions on goods made with forced labor. Proposed rates range from 10 percent to 12.5 percent, though the measures were still under review at the time of the briefing.

Irwin said importers should pay close attention to what replaces the temporary Section 122 tariffs when they expire next week.

"Those tariffs are going to roll off," Irwin said of the Section 122 measures, adding that the administration is seeking to replace parts of the temporary system through Section 301.

He said the proposed measures could preserve much of the current tariff structure while creating additional uncertainty over which countries and goods would ultimately be affected.

"This is sort of the environment we're going to be in for the next two years: uncertainty about USMCA, uncertainty about the China relationship, and then uncertainty with these Section 301 tariffs," he said.

The treatment of low-value shipments is also changing. The US has suspended duty-free treatment for many packages valued at $800 or less and introduced new processing requirements.

Irwin said the changes will create greater compliance and administrative burdens for small importers accustomed to receiving low-value shipments by mail with limited customs procedures.

Seroka of the Port of Los Angeles said the effects would extend beyond consumers purchasing products online to family-owned businesses that rely on imported goods.

He recalled visiting retailers in California that had built their businesses around smaller shipments.

"Then suddenly they were hit with tax hikes that were almost insurmountable based on the size of their business," he said. "It's going to be a big deal for us coming up."

Looking beyond the current administration, Irwin said future US presidents may seek greater stability in trade policy, but are unlikely to restore the system that existed before the tariff increases of recent years.

"What tends to go up quickly sometimes comes down slowly," he said.