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FTZ’ine June 2019
June 3, 2019
FTZ’ine August 2019
August 1, 2019

FTZ’ine July 2019

FTZs Dodge A Bullet

At the G-20 Summit in Japan this past weekend, President Trump agreed to postpone additional tariffs on goods from China while the two countries resume trade negotiations. FTZs, like other importers, already face 25% tariffs on over $250B of goods from China. The President had threatened tariffs on an additional $300B+ of Chinese goods, which will remain just a possibility for now.

Comments from the Chairman of the Federal Reserve buoyed the stock market last month, and the US economy as a whole continues to shake off the effects of the rising tariffs. Individual sectors reliant on exports, including FTZs, remain impacted by the tariffs in two ways. The first is by the retaliatory tariffs and curbs on spending put in place by China, and the second is the dampening effect the tariffs are having on the world’s second largest economy.

Mexico breathed new life into the US/Mexico/Canada Agreement (USMCA) by being the first country to ratify the trade deal. Could it still have a chance to pass in 2019?

Although Theresa May attended the G-20 meeting as the Prime Minister of England, most leaders are looking ahead to her replacement who is expected to be elected by the end of this month. That could have a major impact on the shape of Britain’s withdrawal from the European Union.

Attacks on ships in the Gulf of Oman also weighed on the trade community last month. The US has accused Iran of carrying out attacks on two ships and lethal force, along with collateral damage, is still possible if the two countries do not come to a resolution soon.

FTZ’ine July 2019

Top Story: Foreign-Trade Zones Avoid Additional China Tariffs For Now

“We discussed a lot of things, and we’re right back on track,” President Trump said about his meeting with President Xi over the weekend. “We had a very, very good meeting with China.”

Leaders from some of the world’s biggest economies were assembled in Osaka, Japan for the annual two-day G-20 summit to discuss pressing issues ranging from trade wars to election fraud.

The President also said "I did agree to allow our companies" to sell equipment to Chinese telecommunications giant Huawei, and that in exchange China will also be buying more US farm goods.

While the President will not lift existing sanctions on Chinese goods, he said he’d refrain from imposing new levies on an additional $300 billion worth of goods China as he and President Xi Jinping of China called for a tariff ceasefire.

A deal with China was “90 percent” done before talks collapsed, the President had said before the meetings began. But he insisted that the US won’t back down from key demands, and still wants provisions like protections for American intellectual property and for China to open its market to foreign companies.

Negotiations are being restarted. “Mr. Trump hosted a call with Mr. Xi last week, while Treasury Secretary Steven Mnuchin and Robert Lighthizer, the top trade negotiator, spoke to their counterpart, Liu He, China’s vice premier, on Monday,” the New York Times reported.

Treasury Secretary Steven Mnuchin told CNBC’s Hadley Gamble last Wednesday that “We were about 90% of the way there [with a deal] and I think there’s a path to complete this.”

At their meeting in December at the G-20 in Buenos Aires, The two Presidents reached a truce in the trade war, but talks in May broke down, and the countries added additional tariffs.

Secretary Mnuchin said he was hopeful a deal could be struck by the end of the year but said “there needs to be the right efforts in place.” Wall Street jumped after the Secretary’s comments, though many in the zones community remain pragmatic about the chances for a near-term deal.

Talks between the US and China broke down in May because China reportedly did not want to commit to changes in its laws to help allay US concerns about intellectual property theft, forced technology transfers and currency manipulation.

The trade war has impacted the Chinese and US economies. In April, the International Monetary Fund lowered its global growth forecast for 2019 to 3.3%, down from an earlier forecast of 3.5%, citing ongoing global trade tensions as the rationale for the downgrade.

Tanker Attacks Put International Shippers on Edge

Two fuel tankers were attacked in the Gulf of Oman in the middle of June, increasing fears of the likelihood of military conflict as tensions rise between the US and Iran. The attacks immediately drew international trade into the disagreement between the two countries.

Relations deteriorated further after Iran downed an unmanned US spy drone last week, claiming it was over Iranian territory. The US insists it was over international waters. On Tuesday, President Trump threatened to attack Iran in retaliation for any strikes by Tehran “on anything American.”

Tensions with Iran have escalated following the US decision to withdraw from an international nuclear deal and reimpose sanctions on the Islamic Republic. Now the FTZ community is left to wonder how wide the impact on international shipping may become.

The US Navy's 5th Fleet, which oversees operations in the Middle East, says it dispatched the USS Bainbridge destroyer to provide assistance after receiving distress calls from Japanese and Norwegian shipping vessels in the gulf.

The attacks came just as Japanese Prime Minister Shinzo Abe was meeting with Iranian officials in a bid to ease tensions. Tokyo seeks to promote a de-escalation that would allow the US to lift punishing sanctions and restore Iran’s ability to sell oil that American allies, including Japan, need.

Iranian state media reported its vessels were the first to reach the ships following two explosions and were the only ones to render aid. Roughly two dozen crewmembers from each ship were reportedly evacuated.

The United Kingdom Maritime Trade Operations, which monitors shipping in the gulf, cautioned ships to employ "extreme caution" and is investigating the incident. The identity of the perpetrators of the attacks was not immediately clear. But they follow similar incidents in the region seemingly targeted to send a message to US allies. Two Saudi oil tankers were sabotaged in mid-May, a day before Iran-backed Houthi rebels in Yemen launched drone attacks against a Saudi oil pipeline. Days later a rocket attack in Baghdad struck an area near the heavily fortified US Embassy.

American intelligence agencies believe the incidents were orchestrated by Tehran and carried out by its proxies in response to the Trump administration's punishing new policies.

And they followed national security adviser John Bolton's assertion in early May that Iran posed a new threat to the US and its partners in the region. His assessment has subsequently been supported by senior military leaders, including Marine Gen. Frank McKenzie, who oversees all US military operations in the region, and Joint Chiefs of Staff Chairman Marine Gen. Joseph Dunford.

During his meetings with Iranian President Hassan Rouhani, Prime Minister Abe reportedly delivered a message on behalf of the US President. Senior Iranian leaders, however, said publicly they had no interest in further negotiations with the US until it lifts sanctions.

"I do not consider Trump, as a person, deserving to exchange messages with. We will not negotiate with the United States," Ayatollah Khamenei, the spiritual leader of Iran's revolutionary government, said Thursday.

This detetiorating situation must be watched carefully as the trade community has already suffered collateral damage as a result of the dispute.

England
Mexico

Mexico takes the lead in ratifying USMCA

Last month Mexico became the first country to ratify the new free-trade agreement for North America, as its Senate voted overwhelmingly to approve the deal updating the rules for one of the world’s largest trade blocs.

Senators voted 114 to 4 to ratify the US/Mexico/Canada Agreement (USMCA), which needed only a simple majority to pass. Mexico’s Senate has sole responsibility for approving international treaties negotiated by the country’s president.

Mexico has been a strong proponent of the pact, which builds on NAFTA, the free-trade accord that transformed Mexico’s economy over the past 25 years. Mexico sends about 80 percent of its exports to the United States, and the two countries’ manufacturing processes have become increasingly intertwined.

Mexican President Andrés Manuel López Obrador said the treaty would be good for job creation, trade and foreign investment. “We once again reiterate our determination, our conviction to maintain relations with Canada and the United States of friendship and cooperation in enhancing development,” he said in a video statement.

While the new treaty sailed through the Mexican legislature, it faces a rougher road in Washington. House Speaker Nancy Pelosi (D-Calif.) hasn’t set a date for a ratification vote. Democrats, who hold a majority in the House, say they want stronger enforcement mechanisms for the pact’s labor and environmental rules. If the pact isn’t ratified this year, it risks getting bogged down in the US presidential campaign next year.

In Canada, meanwhile, Prime Minister Justin Trudeau wants to get the deal through Parliament, but the timing is tight. If the Trump administration can reach an agreement with Democrats, the Canadians will probably press ahead on a vote this summer — even if it means calling members of Parliament back from their summer break.

Mexico this year became the No. 1 trade partner of the United States. Census data released in April showed that Mexico’s trade with the United States rose to $97.4 billion for the first two months of 2019, lifting it above Canada, at $92.4 billion, and China, at $90.4 billion.

Passage of the new treaty in Mexico — known there by its Spanish initials, T-MEC — was never in doubt. President López Obrador’s party holds a majority in the Senate. Mexico’s congress passed a labor law in April that strengthens independent unions, addressing concerns raised by US Democrats. Opposition parties declared in recent days they would back the new accord — although some senators did so reluctantly.

“It’s not the best treaty, but it’s the one we’ve got,” Antonio García Conejo, a senator said during the debate. He added: “We have to keep seeking alternatives and diversify our commerce.”

Among USMCA’s changes are a requirement that more components for autos be produced in the three countries and a provision that about 40 percent of each vehicle be produced by workers who earn at least $16 an hour.

No-Deal Brexit Looks More Likely Ahead of UK Vote

The race to replace Theresa May as leader of Britain’s Conservative Party has reached its final stage with Boris Johnson and Jeremy Hunt chosen as the two candidates in a final vote.

It is now up to the Conservative Party's 160,000 members to select the winner, with the tally to be announced on July 23rd.

Johnson, a former foreign minister and London mayor, and currently the favorite in British polls, has ruled out any extension of the Brexit talks beyond Oct. 31. “My pledge is to come out of the EU at Halloween on 31 October,” Johnson told BBC TV. The determination to leave the EU with or without a negotiated agreement greatly concerns many business leaders in the UK.

“The way to get our friends and partners to understand how serious we are is finally, I’m afraid, to [. . . ] prepare confidently and seriously for a WTO or no-deal outcome,” he said in the BBC TV interview on Monday evening.

As a member of the World Trade Organization, British tariffs and other terms governing its trade with the EU would be set under WTO rules unless there is a separate deal on Brexit.

No-deal means there would be no transition period so the exit would be abrupt, the nightmare scenario for many businesses and the dream of hard Brexiteers who want a decisive split.

Johnson reaffirmed his view, contested by many, that Britain could retain tariff-free trade with the EU after a no-deal exit.

“I think it would be very bizarre if the EU should decide on their own... if they decided to impose tariffs on goods coming from the UK it would be... a return to Napoleon’s continental system,” Johnson told LBC radio on Tuesday.

Napoleon Bonaparte’s ‘Continental System’ was a blockade whose aim was to cripple Britain’s economy during the Napoleonic wars in the early 19th century.

Johnson said he did not want a no-deal Brexit - which investors warn would roil financial markets and send shockwaves through the European economy - but that it was necessary to put it on the table so that Britain could get the result it wanted.

Britain’s car industry warned the next prime minister on Tuesday against a “seismic” no-deal Brexit, which it said could add billions of pounds in tariffs and cause border disruption, crippling the sector.

Business leaders have already triggered contingency plans to cope with additional checks on the post-Brexit UK-EU border, which they fear will clog ports, silt up the arteries of trade and dislocate supply chains in Europe and beyond.

Brexit supporters say there would be short-term disruption but in the long-term the UK would thrive if cut free from what they cast as a doomed experiment in German-dominated unity that has led to Europe falling behind China and the United States.

England
Fed

Interest Rate Hints Keep Markets and US Economy Humming

The US economy grew a surprisingly strong 3.1% in this year's first quarter, according to the revised GDP estimate from the Bureau of Economic Analysis (BEA). This was about a full percentage point more than expected by the consensus of economists who track the number. In the fourth quarter of 2018, real GDP increased by only 2.2 percent, and the government shutdown extended into the first quarter of 2019 as well.

Confirmation of the growth rate means the economic expansion that followed the Great Recession remains in place and celebrated its 10th birthday last month. In July, it could become the longest expansion in US economic history.

The previous record holder, the 1990s expansion, was fueled by business adoption of the internet — Amazon opened for business as an online bookseller in July 1994.

The current expansion is often thought of as weaker than those of the past, and perhaps that is largely why it has gone on for so long.

Jerome H. Powell, chairman of the Federal Reserve, said last week that the central bank is weighing whether an interest-rate cut will be needed as trade risks stir economic uncertainty and inflation lags. But he made clear that the institution considers itself independent from the White House and President Trump, who continues to push publicly for a rate cut.

Mr. Powell said the case for a rate cut has strengthened somewhat given that economic “crosscurrents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy.”

But he stopped short of saying a cut was guaranteed, noting that the Fed would continue to watch economic events unfold and would avoid reacting to short-term issues. “The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation,” Mr. Powell said at a Council on Foreign Relations event in New York.

The Fed is watching warily as global trade flows slow, manufacturing indexes sag and confidence gauges wobble against continuing uncertainty about a trade war.

Because interest rates are already historically low, the Fed wants to take a risk-management approach to setting policy, fending off any softening in growth before it becomes serious.

That inflation has never sustainably hit the Fed’s 2 percent target, formally in place since 2012, heightens the case for moving pre-emptively — rather than waiting and risking making a move too late. Inflation came in at just 1.5 percent in the year through April.

“That undershoot looks like it might be more persistent than we had hoped, and that is not a good thing,” Mr. Powell said in a question-and-answer session with Neil Irwin, a senior economic correspondent with The New York Times. “It’s another argument, frankly, for providing more policy accommodation.”

Mr. Powell’s Fed colleagues are with him as he watches incoming data warily.

“The economy had solid momentum, but now it’s pedaling against some pretty significant headwinds,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in an interview with The New York Times on Tuesday. “Let’s watch the next six weeks and see if the data reverse,” and “see how the uncertainty resolves itself as we get more information about trade negotiations, and finally, let’s see what other countries are doing to offset potential weaknesses.”

Ms. Daly, who is not currently a voting member but participates in discussions about rate policy, would not say whether she has projected rate cuts this year. But she said she’s concerned that, with more muted growth, it might take longer to push inflation back toward the Fed’s 2 percent goal.

“The bottom line for me is that I want to sustain the expansion so that we can also push inflation back up to our target,” Ms. Daly said.

Wage growth is showing signs of slowing, and several measures of inflation expectations are softening. That increases the risk that price growth will remain permanently below the central bank’s goal, which is meant to provide a buffer to ward off economy-harming deflation.

slide deck2

U.S. Foreign-Trade Zones Board Activity

  • Teijin Carbon Fibers Inc., submitted a notification of proposed production activity for polyacrylonitrile-based carbon fiber in Foreign-Trade Zone 38 in Greenwood, South Carolina. MORE
  • The Sault Ste. Marie Economic Development Corporation received approval to reorganize Foreign-Trade Zone 16 under the alternative site framework with a service area of Chippewa County, Michigan.  MORE
  • The South Jersey Port Corporation received approval to reorganize and expand FTZ 142 under the alternative site framework with a service area of Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer and Salem Counties, New Jersey.  MORE
  • GlaxoSmithKline, PLC, received authorization of production activity for pharmaceutical products in Foreign-Trade Zone 93 in Zebulon, North Carolina. MORE
  • HP International Trading B.V. LLC, submitted an application to operate its facilities in Aguadilla, Puerto Rico as a subzone of Foreign-Trade Zone 61.  MORE
  • Puerto Rico Wood Treating Industries, Inc. submitted an application to operate its facilities in San Juan, Puerto Rico as a subzone of Foreign-Trade Zone 61.  MORE
  • The Woodbridge Group received authorization of production activity for flame laminated textiles in Site 10 of Foreign-Trade Zone 68 in El Paso, Texas. MORE
  • Catalent Pharma Solutions, LLC received authorization of production activity for pharmceutical products in Subzone 193A in St. Petersburg, Florida. MORE
  • Hartland Controls, LLC received approval to operate its Rocks Falls, Illinois facilities as Subzone 271B.  MORE
  • MVP International Group Inc. submitted a notification of proposed production activity for candles, reed diffusers, wax melts in Foreign-Trade Zone 230G in Elkin and Boonville, North Carolina.  MORE
  • Calsonic Kansei North America received authorization of production activity for automotive parts in Foreign-Trade Zone 158 in Canton, Mississippi.  MORE
  • Calsonic Kansei North America received authorization of production activity for automotive parts in Foreign-Trade Zone 78 in Shelbyville and Lewisburg, Tennessee.  MORE
  • Universal Metal Products, Inc. received authorization of production activity for formed and converted metal for commercial and industrial use in Foreign-Trade Zone 12 in Pharr, Texas.  MORE
  • The Southwest Idaho Manufacturers' Alliance has submitted an application to expand the service area of Foreign-Trade Zone 280 under the alternative site framework to include Elmore County, Idaho.  MORE
  • Waterfront Enterprises LLC, submitted an application to operate its facilities in New Haven, Connecticut as a subzone of Foreign-Trade Zone 162.  MORE
  • Whirlpool Corporation submitted a notification of proposed production activity for small appliances in Foreign-Trade Zone 100 in Greenville, Ohio.  MORE
  • Vision Technologies Marine, Inc. submitted a notification of proposed production activity for crown compensators for ocean-going vessels and additional components thereof in Foreign-Trade Zone 92 in Gulfport, Mississippi. MORE
  • Maine Coast Shellfish LLC, received approval to operate its York, Maine facility as Subzone 186B.  MORE

FTZs Dodge A Bullet 

At the G-20 Summit in Japan this past weekend, President Trump agreed to postpone additional tariffs on goods from China while the two countries resume trade negotiations. FTZs, like other importers, already face 25% tariffs on over $250B of goods from China. The President had threatened tariffs on an additional $300B+ of Chinese goods, which will remain just a possibility for now.

Comments from the Chairman of the Federal Reserve buoyed the stock market last month, and the US economy as a whole continues to shake off the effects of the rising tariffs. Individual sectors reliant on exports, including FTZs, remain impacted by the tariffs in two ways. The first is by the retaliatory tariffs and curbs on spending put in place by China, and the second is the dampening effect the tariffs are having on the world’s second largest economy.

Mexico breathed new life into the US/Mexico/Canada Agreement (USMCA) by being the first country to ratify the trade deal. Could it still have a chance to pass in 2019?

Although Theresa May attended the G-20 meeting as the Prime Minister of England, most leaders are looking ahead to her replacement who is expected to be elected by the end of this month. That could have a major impact on the shape of Britain’s withdrawal from the European Union.

Attacks on ships in the Gulf of Oman also weighed on the trade community last month. The US has accused Iran of carrying out attacks on two ships and lethal force, along with collateral damage, is still possible if the two countries do not come to a resolution soon.

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