25 March 2020
Coronavirus pandemic likely to exacerbate future EU – US trade dispute
While writing about trade dispute seems kind of trivial at a time when the whole world is weathering the Covid-19 pandemic, it is extremely important to understand the economic implications in order to better prepare and recover after the pandemic passes. At the moment, the big question is about the recovery of consumption and on how long the current situation will persist. Having said that, it is highly likely that the coronavirus epidemic will exacerbate tensions in global trade relations and that it is threatening to unleash a new surge of clashes. As China is slowly recovering from the pandemic and is ready to resume production, and as the world economy is threatened, the subject of trade conflicts in general and between Europe and the United States in particular is latent and may arise again soon.
“The current world health situation is going to have a great impact on trade as consumers will most likely reduce their purchase,” predicts Claude Eric Paquin, vice-chairman of the Paris-based Conseil National du Cuir (CNC). “In our industries there cannot be recovery of sales. What is lost is lost,” he adds.
According to business analysts, one of the consequences of the production breakdown caused by the COVID-19 outbreak could be the mass relocation of industries. “In the long term we will certainly see the repatriation of some manufacturing,” agrees Paquin. “For the shoe industry however it is a difficult exercise as most European countries, with the exception of southern Europe, have lost their savoir-faire and their production facilities.”
Concerning the ongoing trade dispute between the United States and Europe, the announcement on March 18 that, despite the escalating global crisis and repeated demands of leniency, the US government will not grant China any tariff cuts, does not bode well for the future.
“It is predictable that the US government will do everything possible to make it difficult for Europe,” says Paquin.
Over the course of his presidency, US President Donald Trump has imposed tariffs on a total of more than $400 billion in goods, ranging from Chinese apparel imports and French luxury products to European aircraft.
In 2018, he also halted the ongoing Transatlantic Trade and Investment Partnership (TTIP), a proposed trade agreement between the European Union and the United States aimed at promoting trade and multilateral economic growth, an action that triggered a trade conflict with the EU. The TTIP could boost the EU’s economy by €120 billion, the US economy by €90 billion and the rest of the world by €100 billion according to the European Commission.
“It was a drawback at the time as the expectations regarding this deal for the Portuguese and European footwear industries were very high,” recalls Luís Onofre, President of the European Confederation of the Footwear Industry (CEC) and of the Portuguese Footwear, Components, Leather Goods Manufacturers’ Association (APICCAPS). Over the course of 2019, new negotiations to establish a Free Trade Area (FTA) between the USA and the European Union were initiated. “They are slow but ongoing,” assures Onofre. Early this year, President Donald Trump was allowed by the World Trade Organization (WTO) to establish additional duties on some European products but footwear is not included, according to Onofre.
From the perspective of the Portuguese Footwear Industry, the US trade conflict with China in 2019 benefitted Portuguese footwear exports to the US which reached a historical record of 90 million euros, growing by more than 20%. “The US market is one of the most important outside the EU for Portugal. One that represents almost unlimited potential growth given its dimension and our current market share,” says Onofre.
However, considering the current circumstances one has to remain cautious as it is difficult to make predictions with any certainty. “All trade disputes have direct and indirect consequences to economies, industries, companies and consumers all over the world, given that we all rely on international trade to do business. If the dispute between the US and the EU intensifies, we will certainly be impacted as the US market is an important market for us,” warns Onofre.
Exacerbating the matter is the fact that many of the small- and medium-sized enterprises such as retailers or manufacturers that were hurt by the US president’s trade battles are also now suffering from the economic fallout of the coronavirus.
“Consequences from trade wars can be positive in the short run for specific players, but in the long run they are negative for everyone. Protectionism does not deliver economic development,” Onofre proclaims.
“Both the Portuguese Footwear Industry and the European Footwear Industry which I represent are strong advocates of free trade and of agreements and alliances between countries. I strongly believe that this is the only way we can all prosper”.
Mr. Luis Onofre
As we will be dealing with the economic consequences of the current situation for years to come, let us hope that industry and states leaders will maintain a unified, global approach to dealing with the challenges this pandemic will cause.