Trade Wars

Global Protectionism as a Threat to Cross-Border Transactions

Protectionism is nothing new. Governments and companies have been engaging in it for time immemorial in order to support their own interests. What is new, is the global scale of its most recent manifestation.

The rise of protectionism across the western world, caused by an erosion of living standards, has sparked a trade war which threatens to seriously damage the global economy. The main players in this war are the world’s only two genuine superpowers – China and the United States (US).

Once upon a time, this would have been an easy war for the US to win, when China sold and the US bought. As China has risen, this dynamic has changed and now China is also an important market for US goods and services; which creates a thorny problem for President Trump.

While the US and China are the major players, other countries have also been deeply affected. Germany’s export-oriented economy is struggling, while France has pledged to implement a digital tax on foreign digital giants selling services to French consumers. In the United Kingdom, the government, along with other European partners, have levied anti-dumping tariffs on Chinese steel, in an effort to prop up the failing domestic steel industries. Finland was on the receiving end of increasingly frosty relations between Russia and the Protectionism is nothing new. Governments and companies have been engaging in it for time immemorial in order to support their own interests. What is new, is the global scale of its most recent manifestation. The rise of protectionism across the western world, caused by an erosion of living standards, has sparked a trade war which threatens to seriously damage the global economy. The main players in this war are the world’s only two genuine superpowers – China and the United States (US).

Once upon a time, this would have been an easy war for the US to win, when China sold and the US bought. As China has risen, this dynamic has changed and now China is also an important market for US goods and services; which creates a thorny problem for President Trump.

While the US and China are the major players, other countries have also been deeply affected. Germany’s export-oriented economy is struggling, while France has pledged to implement a digital tax on foreign digital giants selling services to French consumers. In the United Kingdom, the government, along with other European partners, have levied anti-dumping tariffs on Chinese steel, in an effort to prop up the failing domestic steel industries. Finland was on the receiving end of increasingly frosty relations between Russia and the European Union (EU), following the annexation of Crimea and EU sanctions against Russia, have put countries like Finland on the receiving end, when Russia rolled out a sweeping embargo on food imports.

The main weapon of economic protectionism is the tariff, which is usually applied to imports that might threaten domestic producers. They can also be used aggressively to cause harm to an exporting country.

In US legislator language, for example, Section 301 tariffs apply to Chinese goods, while Section 232 tariffs apply to aluminium and steel. US tariffs on some Chinese products, have risen as high as 25 per cent, prompting retaliatory tariffs from China and a desperate scramble from those affected to find ways to avoid the extra charges.

In these challenging times, companies require the help of experts in international trade law to find ways to mitigate these problems. Reclassifying products is a complex process, but it can be worthwhile if it reduces import costs. Swapping the country of origin to avoid targeted tariffs is another strategy, but that does require the sourcing of new suppliers in other countries and an upheaval of the supply chain – not a decision to be taken lightly. Certain Chinese exporters have resorted to ‘maquiladora’ tactics, assembling goods in countries such as Mexico for onward shipment across the US border.

The filing of exclusion requests has suddenly become big businesses for international trade lawyers, as clients who were previously tariff free suddenly find themselves hit with levies.

In many cases, there is considerable doubt around whether hastily implemented tariffs and taxes are actually legal. France’s digital tax, for example, may be in contravention of European Union (EU) law because it is too similar to other forms of tax already controlled by the EU.

It is clear that the global trade war is creating significant headaches for a large number of businesses, both large and small. If they are to continue trading profitably in this environment, they will need to the help of trade experts to help them mitigate any damage. The following feature is a discussion between six international trade law experts based in the European Union, US and China about the current landscape of protectionism.