EsS&P Global Market Intelligence Panjiva held a conference on Feb. 14 at the NYSE, including two panels based on the themes raised in Panjiva’s 2020 Outlook series. This report provides a selection of points raised in the first panel – a full video of the event is available online at YouTube.
The panel included Congressman Steven Horsford (D-NV4), Satyam Panday (S&P Global Ratings) and Chris Rogers (Panjiva) and was moderated by Paul Gruenwald (S&P Global Ratings) and discussed U.S. trade policy and politics with a focus on relations with China and Europe.
The importance of global trade to local economies (Horsford)
The state of Nevada has exports annually ranging from raw materials like copper and gold through electronics and healthcare products. That means there’s close monitoring of international trade policy.
Horsford noted that voters care about jobs and economic growth, so trade policy needs to be seen through that lens rather than the minutiae of policy developments. Indeed, most of the consequences of the trade war with China and the negotiations regarding the passage of USMCA should be seen in that light.
Source: Panjiva
Poll: What are the prospects for U.S.-China relations in 2020
We asked the audience what they expect to see from the development of the phase 1 and phase 2 trade deals between the U.S. and China. Most respondents see China failing to deliver its commitments to increase purchasing from the U.S. (52%) while there are low expectations of a phase 2 deal arriving.
Source: Panjiva
When a deal isn’t a deal (Horsford, Rogers)
Horsford asserted that the phase 1 agreement reached between the U.S. and China shouldn’t be referred to as a trade deal as there’s been no Congressional oversight. It also has no clear enforcement terms and none of the wider requirements of a modern trade deal regarding environment or labor protections. It should instead be seen as simply a transactional agreement.
Panjiva’s data suggests China’s purchasing commitment may be difficult to deliver given the scale of growth needed and proportion of privately owned companies involved. COVID-19 will cut ability to deliver in 2020, though that may not be a problem depending on communication
Source: Panjiva
Does the phase 1 deal matter? (Panday)
The proportion of U.S. GDP from internal drivers (consumption, investment, government spending) represents 85% of the total. As a result the trade deal will be beneficial but will only add a fraction to GDP growth.
A bigger issue is whether the economy has the capacity to deliver. Overall capacity utilization reached 72.3% in Q3 while the labor market remains tight. Challenging planting conditions recently may crimp availability of agricultural products.
Source: Panjiva
Keeping control (Horsford)
The U.S.-Mexico-Canada Agreement (USMCA) went through significant changes to its labor and environmental provisions during its passage through congress. It could therefore be taken as a model for the future.
More broadly though the issue of increased executive branch of non-traditional use of trade measures – for example section 232 in steel and aluminium – raises the question as to whether increased congressional oversight is needed.
Poll: What are the prospects for U.S.-EU relations in 2020
The audience was asked to consider whether there’d be a marked improvement in relations between the U.S. and EU relating in a trade deal, or whether there’d be a deterioration and rise in tariffs. The most common answer was effectively “business as usual” with no deal but no tariffs either (44%) while concerns about carbon border taxes (28%) and hopes for a mini-deal (24%) were evenly balanced.
Source: Panjiva
European dealmaking (Horsford, Panday)
A deal between the U.S. and U.K. must ensure the latter stands by its security commitments, particularly regarding the Good Friday agreement and the Irish border. The deal needs to be about more than just transactions in goods.
The EU is a bigger trading partner for the U.S. than China when taking imports and exports together, with significant connections in foreign direct investment too. Maintaining good relations is therefore important therefore not just economically but also politically.
What to expect from Latin America and rest of world (Rogers, Horsford)
Within Latin America the biggest concern lies with Mercosur where the outlook for the block is somewhat cloudy given worsened relations between Brazil and Argentina. A trade deal between Mercosur and the EU is in the balance.
Elsewhere the African Continental Free Trade Area provides an exciting opportunity for regional development. In the meantime though it is still incumbent on the EU and U.S. to match China in assisting economic development in the area. The development of a bilateral trade deal between the U.S. and Kenya could become a template for the region.
Predictions of coronavirus impact (Panday, Rogers)
S&P Global Ratings has already adjusted its forecasts in reaction to the COVID-19 outbreak with a 0.7% reduction to GDP growth for the full year, while U.S. growth expectations have also been reduced.
Companies face the dual effect of reduced sales in China and downstream disruptions to supply chains globally. The latter has led to production closures in the automotive sector in particular while there’s already also been an impact on the shipping industry.
Firms are unlikely to change their supply chains purely due to COVID-19, with a long-term reduction reliance on China being the result of the U.S.-China trade war and comparative labor cost decisions too.
Environmental provisions (Horsford, Rogers)
Horsford stated that all future trade deals should have protections for the environment, though domestic action is also needed. Legislation is being progressed to widen federal mandates for renewable energy production.
Tariffs that were designed to encourage production of solar energy equipment have raised costs, though the underlying improvement in efficiency has left power production costs for renewables close to those of traditional power production.
The U.S. still, of course, wants to manufacture the equipment in the U.S., though there’s been a marked rebound in imports of solar energy equipment recently as the industry has adjusted to tariffs.
Source: Panjiva
