According to the Office of the United States Trade Representative, at $611 billion, Mexico was the third-largest trade partner of the U.S. in 2018. Only China ($737.1 billion) and Canada ($714 billion) ranked higher.
In 2019, the intersection of three circumstances points to the likelihood that trade with Mexico will increase significantly in the coming years. Those three circumstances are:
The U.S.-China trade war continues with no end in sight. The U.S. recently postponed new tariffs on many consumer goods from China (including cell phones, laptop computers and toys) until after the start of the Christmas shopping season. But that postponement followed quickly on the heels of the U.S. labeling China a currency manipulator, opening a new front on what had been exclusively a trade war.
Fred Bergsten, director emeritus of the Peterson Institute for International Economics said this of the action. “The trade war has now become a currency war, and the Chinese are undoubtedly going to take further action.”
Many manufacturers and suppliers have already relocated or considered moving their China operations to Vietnam, but that has prompted outcries from the Trump administration that Vietnam is an unfair trade partner. The U.S. has not ruled out tariffs on shipments sourced from Vietnam, which some observers seem as likely.
The only thing clear in the current situation is that China and Southeast Asia are becoming less stable and less inviting sources of goods and supplies as the short and long-term costs of doing business remain uncertain.
On November 30, 2018, the United States, Mexico and Canada signed the USMCA trade agreement. Negotiations had begun in 2017 to create a new trade deal that would replace the North American Free Trade Agreement (NAFTA), which had governed trade between the three North American countries for 24 years.
The agreement has been ratified in Mexico and Canada, but not in the United States. Democrats in the House of Representatives refuse to ratify the agreement until changes are made in the areas of labor, environment, pharmaceuticals and enforcement. Objections of this type are not unusual, and have been handled in the past in several ways.
NAFTA was not ratified until two side agreements were added: the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation.
The United States-Korea Free Trade Agreement (KORUS FTA) was signed in 2007, but congressional objections to treatment governing bilateral trade of automobiles and U.S. Beef Exports delayed ratification. After several years (and a change in U.S. presidential administrations), the U.S. and Korea renegotiated the agreement to the mutual satisfaction of all stakeholders. When the agreement went into effect on March 15, 2012, it became the first free trade agreement between the United States and a major Asian economic power. It was also the largest trade deal since NAFTA.
These precedents indicate it is highly likely that the USMCA will be revised as necessary and ratified by all three nations. Given the way trade in all three countries has benefitted from NAFTA, it’s clear that the stakes are too high for there not to be an agreement.
One recent incident that points out just how desirous Mexico is of continuing free trade with the United States occurred when President Trump threatened to levy tariffs on Mexican shipments unless Mexico did more to stem the flow of illegal migration to the United States. Mexico responded immediately, meeting with U.S. representatives and outlining new steps they would take to help reduce the number of migrants entering the U.S. outside legal channels. As a result of Mexico’s cooperation, the U.S. rescinded its tariff threat.
Once the USMCA is in effect, it promises to bring another generation of stability and cost certainty to U.S.-Mexico trade relations, something that cannot be said of U.S. trade with Asian nations today.
The timing is perfect. As was published in the Journal of Commerce last year, “(Mexico’s) $1 trillion economy now has developed businesses and capital that can meet rising emerging market demand for its goods, both in the Americas and in other world regions.”
If you haven’t been sourcing goods and supplies from Mexico, getting started can be daunting, especially since shipping from Mexico has historically been associated with poor service and delays.
Fortunately, in Jaguar Freight you have a friend in the business that has successfully and seamlessly managed freight on the Mexico-USA trade lane for years.
In Mexico, as throughout the world, we’ve built our reputation on providing supply-chain leadership in the form of first-class logistic services. To that end, we’ve developed our own, proprietary, supply chain software solutions — such as the CyberChain™ software suite — and marry them with logistic experts in ocean, air, and truck freight to deliver excellence to our clients.
As our client, you have a personal point of contact assigned to you, so you always have one consistent voice to rely on no matter where you’re shipping.
Three Things You Should Do Now
Given the turbulence of today’s trade environment, all importers should feel reassured to see Mexico poised to become an even more prominent — and stable — source of goods and supplies.
If you’re interested in learning how Jaguar Freight can help you with shipments from Mexico, contact us today.
The first set of exclusions from the third tranche of $200 billion in Section 301 tariffs on goods from China have been announced by the U.S. Trade Representative and published in the Federal Register.
These exclusions are in effect retroactively from September 24, 2018 — the date the third tranche went into effect — and will remain in effect until August 7, 2020 (one year after their publication date).
Special product descriptions have been prepared for each of the excluded goods. To take advantage of these exclusions, goods must satisfy the full description below.
Be sure that your teams are made aware of these exclusions so you can take full advantage of them.
Exclusion requests may still be submitted through September 30, 2019. As stated in the June 24 announcement of the exclusion process, requests must address the following scenarios:
If more exclusions are granted, they will be announced on a periodic basis. Watch for news of those announcements here.
The USTR has posted the more than 5,000 products included in List 4 of the Section 301 China tariffs. These products will be subject to an additional tariff of 10%. Certain products that appeared on the proposed list on May 17, 2019 have been removed and will not face an additional tariff of 10%.
The complete list has been broken into two sub-lists. Click the links below to see each list.
There will be a process for requesting exclusions, but that process has not been announced at this time.
Jaguar Freight is committed to keeping you informed. Contact us here.
As companies impacted by U.S. tariffs on shipments from China scramble to find reliable and tariff-friendly countries of origin, shifting sourcing to Vietnam has emerged as the most popular solution.
In the first quarter of 2019, as trade was diverted to other countries, China suffered a 13.9 percent drop in exports to the United States. The biggest beneficiary of this trade diversion was Vietnam, which enjoyed a 40.2 percent increase in exports to the U.S.
But as more shipments that used to come from China now emanate from Vietnam, there are three reasons to pause before shifting your sourcing to Vietnam.
The U.S. has already started taking steps to reverse its substantial trade deficit with Vietnam, and more may be on the way. Consider these points:
In June, in response to a Fox Business News question on whether he wanted to impose tariffs on Vietnam, President Trump called Vietnam, “almost the single worst abuser of everybody”.
The next action could be the imposition of tariffs on a broad range of goods from Vietnam, an action that could wipe out the benefits of shifting sourcing to Vietnam. The executive director for Southeast Asia at the US Chamber of Commerce warns that, “There is a real possibility that this administration could slap tariffs on Vietnam.”
Vietnam is a rapidly-growing nation with an inexpensive labor supply, stable government and business-friendly environment, but its infrastructure is not mature or sophisticated. Already, Vietnam’s ports, airports and roads are straining to keep up with demand as companies fleeing China set up shop in Vietnam. And the rise in demand shows no signs of abating.
More than 1,720 projects were granted investment licenses in the first half of 2019, a 26 percent spike over the previous year.
Meanwhile, the World Bank ranks Vietnam’s logistics network 39th in the world (13 places behind China). A Ho Chi Minh City metro rail project has suffered major delays and cost overruns. As the need for infrastructure improvements grows, the government hopes that foreign direct investment will ease the crunch.
A healthy supply chain relies on a healthy infrastructure. Vietnam’s may be nearing the breaking point.
Four of the five top container ports in the world are located in China. Combined, they handled just under 118 million TEU in 2018.
The top two ports in Vietnam (the only ones to make the worldshipping.org Top 50 list) combined to handle less than 10 million TEU in 2018.
If the current boom continues, Vietnam will need to expand its ports or face a capacity crunch.
Shifting your sourcing might be a good idea, but it also might be too soon to make that move. With such rapid growth and a trade war in progress, circumstances are bound to change. At this point, taking a pause to see what’s next might be your best option.
This is a developing story. Stay tuned for updates. If you’d like to discuss your particular circumstances with us, contact Jaguar Freight today.