BGA Senior Adviser Amb. Larry Greenwood wrote a client update on the impacts of the Trump administration’s trade policies on the Indo-Pacific.

Context

  • Threats of tariffs have been fast and furious from Trump. In January and again in early March, Trump announced 25 percent tariffs on Mexican and Canadian goods but pulled back in both cases when markets reacted negatively. He vowed to close “loopholes” effective in mid-March in steel and aluminum tariffs dating from his first administration and threatened an additional 25 percent tariff on Chinese goods. The president has also warned of coming 25 percent levies on autos starting April 2 and future tariffs on semiconductors and pharmaceuticals without setting a firm date.
  • Trump has announced two major initiatives that form the backbone of his trade policy. The America First Trade Policy prioritizes improving market access for U.S. companies abroad, while the Reciprocal Plan is aimed at levying import tariffs, reflecting a tension within the administration between those who see tariffs as a means and those who see them as an end.

Significance

  • The more recent and specific threat to levy 25 percent tariffs on autos, semiconductors and pharmaceuticals would have a serious impact across the Indo-Pacific. Japanese and Korean autos count for around 30 percent of their total exports to the United States, and companies from both countries have extensive manufacturing in the integrated North American market that would be disrupted. The top three semiconductor suppliers — Malaysia, Taiwan and Korea — would be affected, but the impact would be mitigated by the lack of competitive suppliers in the United States, especially for more advanced chips. Given the serious harm these tariffs would inflict on the U.S. economy, there is some doubt that the administration would follow through on these threats.
  • The Reciprocal Plan notes that domestic value-added taxes will be considered as unfair trading practice. Almost all Indo-Pacific countries have a value-added tax that serves as a major pillar of their tax system. It is inconceivable that trading partners will abandon or fundamentally change a major feature of their tax system vital to fiscal stability, setting this issue up to be a major challenge if it is seriously pursued by the Trump administration.

Implications

  • Trump’s policies carry the potential, if the administration chooses to use tariffs as leverage rather than a desired outcome, for improved market access for American companies in specific sectors. Multinationals will also need an active public policy posture, pushing Washington and the region for policies that expand trade and proactively explain that the higher prices that inevitably will come with tariffs are the result of government action not corporate malfeasance.
  • While it is uncertain how that tension will be resolved, the stated hope for the administration to take steps to improve foreign market access, including the possibility of bilateral or sectoral trade agreements, is encouraging for U.S. business. Corporations should bring market access issues in Asia to the attention of the U.S. government as soon as possible at a time when foreign countries maneuver to avoid high U.S. tariffs in the coming year.

We will continue to keep you updated on developments in the Indo-Pacific as they occur. If you have any comments or questions, please contact BGA Senior Adviser Amb. C. Lawrence Greenwood at lgreenwood@bowergroupasia.com.

Best regards,

BGA Indo-Pacific Team

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Senior Advisor

Larry advises clients on government relations and international economic policy, with expertise in trade, finance, development and Asia. In addition to supporting clients in the San Francisco Bay Area, Larry draws on his experience over the past four decades to help clients address business issues in Japan. Until July 2015, Larry was senior managing director for government relations in Asia for MetLife. He was responsible for working with governments, legislatures and industry associations to shape financial policies and regulations in Asia. His achievements at MetLife included building a new government relations team in Asia, helping the company open new businesses ... Read More