USMCA signed, but Chinese tariffs still loom over industry

Tire, auto and labor interests reacted hopefully but cautiously to two major trade moves made by President Trump.

First, on Nov. 30, President Trump joined Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto in signing the U.S.-Mexico-Canada Agreement, which is designed to replace the North America Free Trade Agreement.

Second, on Dec. 1, the White House announced that the U.S. and China would suspend new tariffs for 90 days while they held new talks over a possible trade agreement.

Also, the Trump administration will postpone the Jan. 1 start date for 25 percent tariffs on some $200 billion worth of Chinese goods, including tires, rubber chemicals, manufactured rubber goods, and synthetic and natural rubber.

In return, China said it would buy a "very substantial" amount of U.S. goods in the agricultural, energy, industrial and other sectors, the White House said.

If trade talks fail, the 25 percent tariffs will be instituted, the White House said.

The U.S. instituted 10 percent tariffs on those goods in September 2018, saying they were necessary because of unfair Chinese trade practices. China retaliated almost immediately with tariffs on $60 billion worth of goods imported from the U.S., including tires. Both events came out of the G20 economic summit in Buenos Aires, where President Trump held high-level talks with Chinese President Xi Jinping.

The tariffs on Chinese goods have proved difficult for many rubber companies. One such company is American Biltrite, which on Dec. 5 announced a 5 percent increase on industrial sheet rubber imported from China effective Jan. 1.

The price hike was originally to have been 12 percent, but the postponement of the tariff increase from 10 to 25 percent made the higher price increase unnecessary for now, according to Frederic Guerin, vice president of sales and marketing for American Biltrite's Industrial Rubber Division.

Although the Industrial Rubber Division is based in Sherbrooke, Quebec, American Biltrite has eight U.S. distribution centers, and all the Chinese industrial sheet rubber sold at those centers is subject to the tariffs, according to Guerin.

The Chinese sheet rubber accounts for about 15 to 20 percent of American Biltrite's business. Guerin said he did not expect the 5 percent price increase to have a major impact on sales.

If the 25 percent tariffs become reality, however, Guerin said it will reduce the price differential between the Chinese sheet rubber and rubber from other sources."I believe the customer will be impacted if it goes through," he said. "It is the worst thing for the economy if the buying power of our customers goes down."

As for the USMCA, President Trump called it "the most modern, up-to-date and balanced trade agreement in the history of our country, with the most advanced protections for workers ever developed."

The White House and the Office of the U.S. Trade Representative issued several fact sheets about the trade deal and its provisions to help U.S. manufacturing.

Among other things the USMCA will:Require that 75 percent of automobile content be made in North America, up from NAFTA's 62.5 percent;Require that 40 to 45 percent of vehicles be made by workers earning at least $16 per hour;Maintain NAFTA's provisions on duties, taxes and specific customs processing fees for goods originating in North America, while adding provisions for greater transparency in import and export licensing;Prohibit requirements to use local distributors for importation or place restrictions on used and remanufactured goods; andRequire all parties to adopt and practice labor rights as recognized by the International Labor Organization."We praise this positive step, which reconfirms the importance of free and fair trade among the three countries," the U.S. Tire Manufacturers Association said about the signing of the USMCA. "We look forward to the next steps in this process."

But the United Steelworkers union, which was harshly critical of NAFTA, said the USMCA still needs revision if it is to safeguard U.S. jobs and labor rights.

"Today's signing is an important milestone, but it is only another step in the process to reform NAFTA," the USW said in a Nov. 30 statement.

U.S. workers have struggled for the last 25 years with the negative effects of NAFTA, according to the union.

"NAFTA and implementing legislation must reverse the corporate incentives to outsource production and instead promote investments in plants, equipment and people domestically," it said.

The recent announcement by General Motors Co. that it would close five U.S. plants and lay off 15,000 workers "is clear evidence that corporations are only interested in profits," the USW said.

The USW's criticisms were echoed by pro-labor Rep. Tim Ryan, D-Ohio.

"Although I'm encouraged that the U.S., Canada and Mexico moved to find a solution, the newly signed deal does not go far enough to protect American workers," Ryan said in a news release. "It's time we put American workers first."

Among other commenters, the National Association of Manufacturers expressed pleasure that the USMCA is trilateral, as NAFTA was. Before the U.S. and Canada reached agreement late on Sept. 30, there were fears that the Trump administration would make a trade deal only with Mexico, because of disputes between the U.S. and Canada centering mainly on dairy and agricultural issues."Manufacturers called for a trilateral agreement, and this moves us one step closer to restoring certainty to the North American market, the biggest market for U.S. exports in the world," the NAM said.

"By securing the relationship with our North American allies, we are all better positioned to demonstrate a strong and united front against China's unfair trade practices and end the harm they may inflict on manufacturers in America," it said.

The Motor & Equipment Manufacturers Association also said the signing of the USMCA was a step forward for all three of the signatory countries.

"The success of our industry and the continued employment of hundreds of thousands of Americans depends on a strong, functioning North American supply chain," MEMA said.

However, MEMA joined auto makers in saying that the USMCA's benefits would be severely mitigated unless the agreement exempts Mexican and Canadian steel and aluminum imports from the tariffs instituted last March by the Trump Administration.

"USMCA will not create the desired opportunities for the U.S. without addressing steel and aluminum tariffs," the association said.

Regarding the announcement on U.S.-China tariffs, MEMA—which opposed the tariffs instituted in September—said the truce would reduce the risk of an ongoing trade dispute with China.

"We hope that this will serve as a starting point for additional negotiations, and an agreement in the future that will allow U.S. companies to remain competitive in a global marketplace while protecting intellectual property rights," MEMA said.

The Auto Care Association, which also opposed the tariffs, joined with MEMA in welcoming the announcement.

"Tariffs inhibit the growth of our industry and make it more expensive for consumers to maintain and repair their vehicles," said Bill Hanvey, ACA CEO and president.

"Further, we are encouraged by the Trump administration's commitment to engaging with the Chinese government in order to reach an agreement with respect to forced technology transfer and intellectual property protections."

The fate of both the USMCA and the U.S.-China trade talks are uncertain at this point. The USMCA must be approved by the national legislatures of all three countries, and some Democrats in Congress already have condemned the agreement for what they see as inadequate protections for workers and the environment.

As for the U.S.-China trade deal, financial markets reacted nervously to the lack of detail about the proposed agreement and its prospects for becoming reality. On Dec. 4, the Dow Jones Industrial Average fell 799.36 points, losing 3.1 percent of its value.