The impact of politics on global trade

As politics shift, so do global agreements. A change in government in one country can and probably will alter international trade’s legal and regulatory changes. Why? Because politicians gain popular support and votes by promising to protect and advance the people’s interests, especially in terms of improving their economic situation. Now it is especially critical that US importers stay informed about any new rules and regulations to ensure their businesses’ smooth flow.

Politics and country of origin

Countries reach agreements on trade, tariff rates, and regulations on imports and exports between them. Certain duties may be based on the item’s “country of origin,” and importers need to be aware. Perhaps the most common example is the trade war between the US and China under the Trump administration due to the trade deficit. Now, selected goods from China are subject to punitive tariffs under Section 301 of the 1974 Trade Act. China responded with its tariffs. Those hardest hit were US soybean farmers. Besides consumers, other industries feeling the blow are auto, appliances, luggage, and more – even pet food importers. Of note, Joe Biden, US president-elect, recently told The New York Times that he would not immediately remove Trump admins’ 25 percent tariffs on $250 billion worth of Chinese imports.

What are tariffs?

Tariffs are taxes levied on imported goods to limit imports to protect local employment, lower competition amongst domestic industries, and raise government revenue. Importers and exporters who have been subjected to, say, Trump admin tariffs, are allowed to request exclusion from the US Trade Representative (USTR). During the past year, the USTR has denied and approved hundreds of exclusions in various industries. Criteria for exclusion are: (1) If the tariffs would cause harsh economic harm to a company or the US; (2) If the product is available in the US or a non-China country; and (3) If the product is relevant to the “Made in China 2025” program or any additional strategic industrial policy in China. Exclusions apply to the product itself and are applicable for a year. Importers of excluded products can retroactively apply for reimbursements of tariffs paid.

What are RTAs, FTAs and PTAs?

Global governance impacts many aspects of trade policy, and the situation is escalating and changing the world trade landscape. What does this mean? Over the last few decades, countries have been reaching more and more trade agreements. These can range from Regional Trade Agreements (RTAs) to Free-Trade Agreement (FTAs) to Preferential Trade Agreements (PTAs). For example, in the 1990s, there were around 100 PTAs, while today, there are over 700. Giving preferential treatment to regions or countries is a hot debate among researchers as they weigh up the pros and cons. What can be said is that modern agreements can serve to regulate investment, intellectual property rights, tariffs, competition policy, government procurement, and other matters. In other words, the barriers they remove are not only at the border but behind the border, creating what has been called a deep integration between countries, in short, politics. Others would argue that some agreements violate the principle of nondiscrimination as outlined by the Most Favored Nation (MFN) accord, a cornerstone law of the World Trade Organizations (WTAO).