Let's talk tariff (conclusion)

Some walk-back, some talkback

- By Vince S. Socco

THE “TARIFF DIPLOMACY” of the United States with the rest of the world is causing upheavals in the global economy. Already, the International Monetary Fund (IMF) has cut its estimates for economic growth by half a percentage point from 3.3% to 2.8%. That is a very significant setback.

It was, therefore, very welcome news when the United States and China announced last week a 90-day reprieve on reciprocal tariffs. The US is winding down a 145% tariff on Chinese goods to 30% while China is also cutting its retaliatory tariff from 125% to 10%. Capital markets breathed a major sigh of relief, at once bouncing back to levels prior to the “Liberation Day” announcement of increased tariffs by President Donald Trump.

While the US and China have agreed to a mechanism to work out trade differences, however, the increased tariffs on autos and auto parts remain in place.

It will be noted that the US government has provided some relief for automakers. It is allowing for exemptions and rebates for certain manufacturers, particularly those investing in production in the country or complying with the United States-Mexico-Canada Agreement (USMCA). The USMCA defines stringent rules-of-origin requirements for autos and auto components. These include Regional Value content (75% of the vehicle value must originate from North America), Labor Value content (40% of the vehicle value must be produced by workers earning at least US$16/hour), Steel and Aluminum Sourcing (70% must be sourced from North America) and Core Parts Origination (engines, transmissions, and batteries must be produced within the USMCA region).