What You Need to Know About Recent Actions on Trade Tariffs

 

List of Proposed Exports for Increased Tariffs    Federal Program Survey

 

The past few weeks have produced a flurry of trade actions – both proposed and implemented – on China’s imports to the U.S. and U.S. exports to China.

The Florida Chamber’s International Trade & Investment Office has summarized recent actions and outlined steps you can take in response to proposed tariffs. Below is a timeline of events:

March 8

On March 8, through presidential proclamation, the U.S. imposed new tariffs on 25 percent steel and 10 percent aluminum, effective March 23, 2018.  The White House additionally issued a formal notice that steel and aluminum imports from Argentina, Brazil, South Korea, and the 28-member states of the European Union, would be excluded from tariffs for the time being. These countries join Canada and Mexico, whose exclusions were noted in the original proclamation.

The White House notice further notes that, for these countries, the tariffs “are suspended until May 1, 2018, pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security.

Our sources suggest that steel and aluminum imports from the excluded countries will likely be subject to quota system, roughly equivalent to last year’s volume of imports.

April 2

Effective April 2, 2018, the Chinese government, in response to U.S. action on steel and aluminum tariffs, announced that they are increasing the tariff rate on various imported U.S. products, including pork, by 25 percent. It’s also imposing a new 15 percent tariff on 120 imported U.S. commodities. NOTE that this is not a proposed list but an actual list of U.S. export to China which are currently subject to increased tariffs.

The Chinese tariff increase will impact approximately $3 billion of U.S. exports to China.  The tariffs are as follows:

15 Percent Tariff On:

  • Nuts – including coconuts, cashews, almonds, hazelnuts, walnuts, chestnuts, pistachios, and macadamia nuts
  • Fresh or dried fruits, – including plantains, bananas, dates, figs, pineapples, avocadoes, guavas, mangoes, oranges, mandarins, clementines, grapefruit, lemons, grapes, watermelons, papayas, apples, pears, cherries, peaches, plums, strawberries, raspberries, blackberries, cranberries, kiwi, durian, persimmons, lychee, longan, rambutan, dragon fruit, and apricots
  • Grape Wine – including denatured ethyl alcohol
  • Ginseng roots
  • Seamless tubes, pipes, and hollow profiles of iron or steel

25 Percent Tariff On:

  • Aluminum waste and scrap and
  • Meat and edible meat offal of swine

April 3

The Trump Administration published a list of $50 billion worth of imports from China to impose with a 25 percent tariff.  The list specifically targets manufacturing sectors which the Chinese government seeks to strengthen through its “Made in China 2025” initiative. This action is the Administration’s response to China’s unfair practices which pressure U.S. companies to transfer technology and intellectual property to Chinese companies.

According to the U.S. Trade Representative (USTR), the list was refined to minimize “disruptions to the U.S. economy.”

See How Do You Submit Your Comments to USTR? to find out how to submit comments to the Trump Administration on these proposed actions.

April 4

In response to U.S. intended action on Chinese imports referenced above, the Chinese government issued a list of 106 U.S. exports (see full list below) valued at $50 billion for possible new tariffs.  The date by when these tariffs go into effect is yet to be announced.  Tariffs target U.S. exports of aircrafts, automobiles, soybeans beef and chemicals.

April 5

President Trump issued a statement saying that he had “instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs.” This additional action is in response to “China’s unfair retaliation” to previous measures imposed on by the Administration.

How Do You Submit Your Comments to USTR?

With the publication of this list, the Trump Administration kicks off a public comment period ending on May 22nd. The USTR has not yet stated when they would make a decision on the final tariff list.

For companies wishing to submit a comment, carefully review the submission schedule and follow the guidelines outlined below.  You have a small window to submit comments. The USTR will hold a public hearing on May 15 regarding a proposed determination on appropriate action on these imported products. Please see the USTR notice for more details.

  • April 23, 2018: Due date for filing requests to appear and a summary of expected testimony at the public hearing and for filing pre-hearing submissions.
  • May 11, 2018: Due date for submission of written comments.
  • May 15, 2018: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW Washington DC 20436 beginning at 10:00 am.
  • May 22, 2018: Due date for submission of post-hearing rebuttal comments.

USTR strongly prefers electronic submissions made through the Federal Rulemaking Portal: http://www.regulations.gov.  It is important that you follow the instructions for submitting comments outlined in USTR noticeFor alternatives to on-line submissions, please contact Sandy McKinzy at (202) 395-9483.

Exclusion Request Process for U.S. Companies

The U.S. Department of Commerce recently issued a Federal Register notice on the process U.S. companies may follow to request that specific steel or aluminum products be excluded from the Sec. 232 tariffs, applied on March 23.

Per a press release from the U.S. Department of Commerce:

Only individuals or organizations using steel or aluminum articles identified in Presidential Proclamations 9704  and 9705 and engaged in business activities in the United States may submit exclusion requests.  Exclusion requests will be posted for a 30-day comment period on www.regulations.gov

Separate exclusion requests must be submitted for each unique steel or aluminum product import. For an exclusion request to be considered, the requester must provide a full factual description of the specific product, its properties, and its quantity.”

Copies of the forms and additional information on the exclusion process will be available here and here.

For questions concerning the exclusion process, contact steel232@bis.doc.gov or 202-482-5642 for steel-related queries and aluminum232@bis.doc.gov or 202-482-4757 for aluminum-related queries.

 

The Florida Chamber Wants to Hear from You

As a long-standing advocate of free-trade, the Florida Chamber will continue to support expanding international trade and investment opportunities for Florida businesses, advocating for fair and equitable market access for Florida-origin exports abroad, and eliminating barriers that are harmful to Florida’s competitiveness as a global hub for trade.

Members of the Florida Chamber of Commerce Board of Directors will be traveling to Washington, D.C. in May 2018, to meet with members of Florida’s Congressional Delegation and federal agencies to urge support of Florida’s job creators.

Your input matters and we would like to hear from you before this important event. To make sure your voice is heard, please take a moment to provide us with your input by taking our brief survey.

For more information on how to join our efforts, please contact Alice Ancona at aancona@flchamber.com.

 

China’s Troubles Are the World’s Troubles

China’s troubles are the world’s troubles.  Its bandwidth cannot be underscored – in 2014 it accounted for 38 percent of global growth. Its reach goes even further as China has invested in many emerging markets and fragile economies around the world that have become dependent on it for growth.  Downturn in China will have far reaching implications.  There are growing concerns that China could very well trigger the next global recession.

 China’s economy is facing a variety of challenges:

  • By providing short term solutions to stabilize its economy it’s also putting pressure on and increasing its debt bubble
  • Diminishing returns on its stimulus efforts
  • Bailouts and plunging shares in the stock market- efforts to ease the fallout from many years of borrowing are all taking its toll
  • Putting a floor on plummeting shares is essentially another bailout on top of a previous one

A significant indicator of the widespread effect of China’s financial situation is the impact China’s slowdown is having on Singapore, an open and trade dependent economy. Singapore experienced a GDP drop of 4.6 percent last quarter, a decrease most likely linked to China. Singapore also experienced a 14 percent decrease in manufacturing from the previous three months; non-oil exports to China fell 4.3 percent in May, 5.1 percent in April and plunged 22.7 percent in February.

China’s impact on Singapore are certainly concerning as are the impacts on its other neighbors in the region which are reliant on a strong Chinese growth engine.  Several countries in Asia have experienced economic slowdowns and decreased exports which have exposed them to risk thus making them vulnerable. With more than 40 percent of global growth coming from Asia (according to Deutsche Bank AG), further slowdowns in China’s economy would certainly have implications on global economic growth.

Florida’s Agriculture Industry Benefits from International Trade

FOR IMMEDIATE RELEASE
CONTACT: Edie Ousley, 850-521-1231 or 850-251-6261
eousley@flchamber.com

 

TALLAHASSEE, FL. (May 12, 2015) – Nine of the top 10 markets for Florida agricultural exports are located in the Americas, according to research from the Florida Chamber’s Global Florida Program.

“The Americas present a large portion of Florida’s international trade opportunity, especially for Florida’s agriculture industry,” said Alice Ancona, Director of Global Outreach for the Florida Chamber of Commerce. “Canada continues to be Florida’s number one destination for Florida agriculture products, while Brazil continues to rank as Florida’s top trading partner and export destination. Florida has a once in a lifetime opportunity to take advantage of changing trade routes and become the global hub for international trade.”

Florida ranks eighth in the United States for “Fresh from Florida” exports of agricultural commodities, valued at an all-time record of $4.2 billion, supporting more than 109,000 jobs and representing an economic value of more than $13 billion.

Canada also tops the list as the top international country for visitors and dollars spent in Florida- with more than $4 billion spent. Growing trade relationships with countries like Chile, Colombia, Venezuela, Argentina and Peru work to create a competitive environment for Florida’s exporters – 95 percent of which are small-to-mid-sized businesses— to grow and thrive. In fact, the Florida Chamber recently led a Florida delegation along with Lieutenant Governor Carlos Lopez-Cantera, to Peru to sign a Memorandum of Understanding (MOU) to help promote trade and investment opportunities between Peru and the United States.

The impact of international trade to Florida’s economy cannot be denied. International business and foreign direct investment accounts for approximately 17 percent of Florida’s economic activity, and directly supports more than 1 million Florida jobs. Florida is the seventh largest exporter of state-origin products with Florida-origin exports totaling more than $58.6 billion and exports from Florida supporting 275,221 U.S. jobs in 2013.

“International trade is critical not only for Florida’s overall economy, but for individual families and communities across the state, as well as visiting consumers,” said  Doug Wheeler, President and CEO, Florida Ports Council. “Increasing trade creates jobs and brings a better quality of life to our state.”

The Florida Chamber’s Global Florida Program’s mission is to educate and promote business opportunities, collaborate and advance policy initiatives in each of the four major geographic regions:  Americas, Asia Pacific, Europe and Middle East/Africa. Agriculture Commissioner Adam Putnam recently sponsored the Florida World Trade Month resolution, which was signed by Governor Scott, Attorney General Pam Bondi and CFO Jeff Atwater.

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The Florida Chamber of Commerce is the voice of business and the state’s largest federation of employers, chambers of commerce and associations, aggressively representing small and large businesses from every industry and every region. The Florida Chamber works within all branches of government to affect those changes set forth in the annual Florida Business Agenda, and which are seen as critical to secure Florida’s future. The Florida Chamber works closely with its Political Operations and the Florida Chamber Foundation. Visit www.FloridaChamber.com for more information.

Did You Know Florida is the 7th Largest Exporter of State-Origin Products?

The impact Florida’s international relationships have on our economy cannot be denied. As the seventh largest exporter of state-origin products, Florida-origin exports total more than $58.6 billion and exports from Florida supported 275,221 U.S. jobs in 2013.

“Florida has come a long way in building international economic development efforts, but our work is far from over,” said Doug Davidson, Market Executive of Global Commercial Banking at Bank of America Merrill Lynch. “At Bank of America, we support the Florida Chamber Foundation’s research in trade and logistics because we know that Florida’s future lies in being globally competitive.”

International business and foreign direct investment account for approximately 17 percent of Florida’s economic activity, and directly support more than 1 million Florida jobs. But as our economy grows, Florida must also continue to diversify export destinations- one of the strategies recommended in the Florida Chamber Foundation’s Florida Trade and Logistics Study 2.0.

From the Americas and beyond, Florida is quickly becoming the hub for global trade, especially in emerging markets such as Africa, Latin America and the Middle East- where growth projections remain higher than in developed markets and where purchasing power continues to increase.

The U.S. currently has five free trade agreements in the Middle East region. U.S. free trade agreements have helped expand Florida’s export opportunities. In fact, more than one-third of Florida exports go to countries that have trade agreements with the United States.

When oil exports are excluded, Florida is the number one exporter to Central and South America, with Florida exporting more than $30 billion in goods to that region in 2014.

While Florida’s top trade partners are Brazil and Canada, many emerging countries from several regions make Florida’s top 10 importers list, such as Peru (the site of a recent Enterprise Florida economic development mission trip that was attended by Alice Ancona, Director of Global Outreach for the Florida Chamber of Commerce), United Arab Emirates and Germany.

DYK_Chart_Exporters

As global trade and economic activity expand over the coming decades, international commerce will continue to play a role as an essential driver of Florida’s future. Diversifying Florida’s export destinations is a strategic step in accomplishing this and is outlined in the Florida Chamber Foundation’s Florida Trade and Logistics Study 2.0.

Florida can create a stronger global economy and jobs for future generations through increased investment in ports and infrastructure projects and expanded export manufacturing and value-added services.

The Florida Chamber is committed to connecting Florida’s business community to global opportunities and leveraging resources and investments to maintain and expand Florida’s position as an international trade leader. The International Business Council is launching a new program to support Florida businesses as they explore opportunities to diversify into new export markets. GLOBAL FLORIDA will focus on connecting them to resources, policy initiatives and business intelligence on market trends for four of the major geographic regions of the world: Americas, Asia Pacific, Europe and Middle East/Africa.

Together we can help Florida become the number one hub for global trade. Join the state’s international business community at the Florida Chamber’s International Days – a two-day event where the top international trade and industry experts will convene to discuss topics such as export diversification.

 

Share Your Story:

Can’t make International Days? Tell us your story and why international relationships matter to Florida by contacting Alice Ancona at aancona@flchamber.com.

About the Florida Scorecard:

The Florida Scorecard, located at www.TheFloridaScorecard.com, presents metrics across Florida’s economy. Each month, the Florida Chamber Foundation produces a Scorecard Stat that takes an in-depth look at one aspect of Florida’s economy. If you would like additional information on the Weekly Scorecard Stat or on the Florida Scorecard, please contact Dr. Jerry Parrish with the Florida Chamber Foundation at 850.521.1283.

Florida Trade Missions Equal High Wage Jobs and Global Opportunities

The Sunshine State is home to more than 60,000 firms dedicated to bringing their goods and services to consumers around the globe. International business and foreign direct investment accounts for approximately 17 percent of Florida’s economic activity, and directly supports more than 1 million Florida jobs.

In Florida, global trade means high-wage jobs and economic prosperity. Economic development and trade missions with partners like Enterprise Florida, Inc. are one way to build Florida’s global economy. In fact, this month, the Florida Chamber’s Director of Global Outreach, Alice Ancona, will join statewide leaders, business and economic development professionals on an economic development mission to Peru. Secretary of Commerce Bill Johnson and Enterprise Florida will lead this effort.

“The Export Development Trade Mission to Peru will give Florida companies the opportunity to meet current and future trading partners in one of the fastest-growing economies in Latin America,” said Bill Johnson, Florida Secretary of Commerce and CEO of Enterprise Florida, Inc. “Expanding the exports of Florida products to Peru even higher than last year’s $2.8 billion will expand Florida businesses and put even more Floridians to work.”

With more than 30 million people and one of the strongest economies in South America, there is a strong potential for Florida companies to expand their exports to Peru. Florida currently exports many different types of Florida-origin products to Peru, including industrial and electric machinery, fertilizers, vehicles, civilian aircraft, and medical instruments.

Florida’s tourism industry benefits as well, with an estimated 229,000 Peruvian visitors to Florida in 2013, up 10 percent from 2012. This makes Peru the 14th-highest nation for Florida visitors. According to the Florida Visitors Study 2013, Peru is also the 9th-highest country in terms of tourist spending while in Florida, with more than $364 million spent in 2013.

With three major seaports and more than 5,400 miles of navigable waterways, Florida business have strong trade opportunities in Peru.

“Peru has a dynamic and expanding economy, and is projected to be one of the fastest growing in Latin America for years to come,” Enterprise Florida Senior Vice President of International Trade and Development, Manny Mencia said about the upcoming mission. “This presents unique opportunities for Florida exporters. If you look at the products that are in demand in Peru, they are all sectors in which Florida specializes. The market is well-positioned for Florida companies to expand, and there’s also interest from Peru in expanding relations with Florida.”

Consider these Florida trade facts:

The impact of global trade and building international trade relationships are key for a secure and sustainable future.

Share Your Story:

There are many tools available to help Florida’s diverse businesses take advantage of trade opportunities found in countries like Peru. What are some tools that have been effective in your community? We want to hear from you. Email jparrish@flfoundation.org today and share your story.

Join Us:

Register to attend the Florida Chamber’s International Days summit scheduled for April 7-9 in Tallahassee. Click here to register and to view the agenda.

About the Florida Scorecard:

The Florida Scorecard, located at www.TheFloridaScorecard.com, presents metrics across Florida’s economy. Each month, the Florida Chamber Foundation produces a Scorecard Stat that takes an in-depth look at one aspect of Florida’s economy. If you would like additional information on the Weekly Scorecard Stat or on the Florida Scorecard, please contact Dr. Jerry Parrish with the Florida Chamber Foundation at 850.521.1283.

Did You Know More Than $60 Billion in Florida Goods Exported Each Year?

For the past three years, Florida has exported an average of $64 billion in goods sourced in our state.  Florida has more than 60,000 companies registered to export, and more than 95 percent of our state’s exporters are small-to-medium-sized businesses that produce two-thirds of Florida’s total export value.  These exports include large amounts of civilian aircraft, engines and parts as well as electronic goods, scrap gold and phosphates, which are used to fertilize crops.

The top customers for Florida exports (2013) are:

  1. Canada  $5.4 billion
  2. Brazil  $5.3 billion
  3. Switzerland $3.4 billion
  4. Colombia $3.3 billion
  5. Venezuela $3.2 billion

Other countries also receive substantial Florida exports each year, with Mexico, Chile, Argentina, Peru and the Dominican Republic continually topping the list of counties with Florida exports. Germany is the top European country for Florida exports, along with Hong Kong, Ecuador, China, the U.K., Costa Rica, the Bahamas and Japan each receiving more than $1 billion in Florida exports yearly.

“Global trade is an important part of not only our business, but also Florida’s future,” said John Hartnett, Vice President of Global Business Development at Endoscopy Replacement Parts. “The boost Florida companies receive to compete worldwide positions them in helping Florida further develop international business, help our diversification, and help create more jobs in our state.”

The impact of international trade and exports for Florida’s economy cannot be denied. Many Florida exporters receive financing and insurance help to conduct business when commercial lending is not available. Exporters often use the Export-Import (Ex-Im) Bank, which is the United State’s official export credit agency.  Ex-Im Bank supports businesses in the U.S. through financing or insuring payment for exports for companies shipping U.S. made goods to foreign countries. When Florida businesses use the program, it helps Florida’s positive trade balance, helps create jobs for Floridians and helps diversify Florida’s economy.

A breakdown of Florida’s companies who have used Ex-Im Bank services shows:

  • 879 total exporters equaling $5 billion in shipments,
  • 668 are small businesses,
  • 168 are minority owned, and
  • 60 are women owned.

Helping Florida manufacturers compete in world markets helps create high-wage jobs. When Florida companies create each new export-oriented manufacturing job, two additional jobs are created in logistics, business services and retail. Additionally, expanding the customer base for Florida manufacturers helps Florida companies diversify their businesses, while helping diversify Florida’s economy.

But recent federal legislation has put Ex-Im Bank at risk and instead of reauthorizing Ex-Im for the long-term, Congress’ solution only reauthorized Ex-Im until June 30, 2015.

According to Alice Ancona, Director of Global Outreach for the Florida Chamber of Commerce, the loss of Ex-Im could hurt Florida companies.

“To secure Florida’s future, and prevent Florida jobs from going to foreign competitors, the Florida Chamber of Commerce supports reauthorizing Ex-Im. Ex-Im is particularly important to small-and-medium-sized businesses; those businesses account for more than 85 percent of transactions. In the past five years alone, Ex-Im has helped more than 600 Florida small businesses, 168 of which are minority owned, with export finance — a $6 billion value in Florida-based exports,” Ancona explained.

Share Your Story:

How is your business engaged in exporting Florida-origin products? Share your story by contacting the Florida Chamber Foundation’s Chief Economist Jerry Parrish at jparrish@flfoundation.org.

About the Florida Scorecard Did You Know:

The Florida Scorecard, located at www.TheFloridaScorecard.com, presents metrics across Florida’s economy. Each month, the Florida Chamber Foundation produces a Scorecard Stat that takes an in-depth look at one aspect of Florida’s economy. If you would like additional information on the Weekly Scorecard Stat or on the Florida Scorecard, please contact Dr. Jerry Parrish with the Florida Chamber Foundation at 850.521.1283 or jparrish@flfoundation.org. You can also follow the Florida Chamber Foundation on Twitter at @FLChamberFDN.

China and Brazil: Growing Together or Apart?

by Any Freitas

China and Brazil’s relations have been characterized by an ‘imperfect interdependence’ thus far. How will that change going forward?

Last April, Brazilian and Chinese Foreign Ministers met in Brasilia to launch the ‘First Strategic Global Dialogue’ between the two countries. Sino-Brazilian strategic dialogues would now be held annually, providing China and Brazil the occasion to regularly meet and reassess their common agenda. In a year when Brazil and China celebrate 40 years of diplomatic relations, a kick-off meeting of this kind bodes well for the future of their relationship.

Despite the distance, Brazil and China have grown remarkably closer in the last decade. Economically, there seemed to be a sort of ‘natural interaction’ between China’s export-focused, industrialized economy and Brazil’s economy which has been primarily an industrial commodities provider.

Quite naturally, then, trade flows between the two giants rose from $6.68 billion in 2003 to over $90 billion in 2013, making them the biggest partners within the BRICS. Since 2009, China has replaced the US and become Brazil’s main trade partner. Likewise, Brazil has been in China’s “top 10” partners list for some years now (7th in 2011, 9th in 2013) and is one of the key destinations of Chinese foreign direct investment (FDI).

Yet, cooperation between the two countries has gone well beyond mere trade and investment, encompassing areas such as education, agriculture, biofuels, nanotechnology and satellite technology. Politically, Brazil and China have also strengthened their links, promoting, inside or outside the BRICS (Brazil, Russia India, China, South Africa), a common agenda on issues of global concern, from development cooperation to international financial regulation.

However, as solid as their relationship may seem, current trends in both countries may seriously challenge what once seemed like a ‘perfect match’. China and Brazil are now being called to face their own (economic) dilemmas and the result of such a revision may lead to a progressive cooling off of their relations–and possibly not only economic ones.

New Model, New Opportunities?

How to secure long-standing and stable growth? For China, at least since 2013, the answer should be found in its domestic market. Partly pushed by the global economic context, China has recently started a revision of its macroeconomic policies and, accordingly, of its growth model. As part of this revision, state investments should now prioritize programmes to stimulate household consumption and job creation, moving away from the focus on industry and infrastructure.

Chinese authorities should moreover promote a gradual liberalization of exchange and interest rates, which could lead to an appreciation of the yuan, which could have important consequences on the prices of Chinese products, domestically and at a global level.

 

Officially announced by Chinese authorities, these measures have been positively received by analysts who believe they should bring greater transparency and predictability to the Chinese economy. They should moreover open new opportunities to countries like Brazil, whose companies would finally be able to compete with China not only in its domestic market, but also in Latin America, where they have been losing ground.

Hence, all seems like good news to the world, in particular to Brazil. Even if there is some truth in this analysis, existing challenges, in Brazil but also in China, may prevent Brazilian companies from seizing the opportunities offered by this Chinese ‘transition’.

While the number of Chinese companies (and investments) in Brazil has been on the rise since 2010, Brazilian companies (with a few exceptions, like Embraer, Vale, Votorantim or BRF-Brazilian Foods) have been struggling to enter the Chinese market, considered too closed and difficult to penetrate. Brazilian authorities (and private sector) see this gap as problematic, and would expect China to be a bit more welcoming to Brazilian business.

Beyond the most evident barriers (linguistic, legal, infrastructure, etc.) they meet when trying to access the Chinese market, Brazilian industries also face important domestic limitations. Among these challenges are Brazil’s complex legal framework, excessive bureaucracy, heavy tax system, poor infrastructure, low-skilled labor force, high inflation and interest rates. Coupled with the lower growth rates of the last few years, these challenges have been increasing the so-called “Brazil cost”, and hence considerably impairing the competitiveness and global reach of Brazilian industries.

Just like China, Brazil is also at a decisive moment when it needs to reconsider the foundations and orientation of its economic model. Yet, while China should strive to invest less and spend more, Brazil needs to shift from a model that privileges domestic consumption, to one in which investment and production are placed at the center. For both countries, the challenges are huge and will imply (internal) struggles, political will and long adaptation periods.

China has so far managed to sustain growth while implementing reforms. In Brazil’s case, on the other hand, despite the government’s attempts, appropriate set of measures that meaningfully boost competitiveness and integration of Brazilian companies into the global market have yet to be found. However, as most analysts point out, without consistent, long-term strategies to tackle such a challenge, there are few chances that Brazil will be able to improve its economic performance–and hence benefit from China’s transition. This seem all the more pressing since commodity prices (that represent nearly 80% of Brazil exports) should progressively decline in the next years, negatively affecting Brazilian trade flow and economic results.

Brazil Industrial Output Drops for Fourth Straight Month

By David Biller

Brazil’s industrial production in June dropped for the fourth straight month as demand cools at home and in Argentina, a major export market.

Production fell 1.4 percent after revisions showed it contracted 0.8 percent in May, more than originally reported, the national statistics agency said today in Rio de Janeiro. The decline was smaller than the 2.3 percent drop in the median estimate from 38 economists surveyed by Bloomberg. Production fell 6.9 percent from the year before, versus a 7.9 percent decline forecast by analysts.

Data showing the fourth-straight decline in output come two days after leading presidential candidates courted industrial sector executives, whose confidence has hit a record low. Industry is struggling to regain its footing as higher interest rates damp domestic demand, a stronger currency makes exports less competitive, and neighboring Argentina, the largest export destination for Brazilian passenger vehicles, defaults on debt amid a deepening recession.

“We have a recession in the industrial sector, or four consecutive quarters of decline,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. (GS), said by phone from New York. “It’s going to be a difficult year, given headwinds we have from Argentina that are likely to intensify after the default and still very weak domestic demand.”

Swap rates on the contract maturing in January 2017 rose nine basis points, or 0.09 percentage point, to 11.58 percent at 3:26 p.m. local time. The real strengthened 0.2 percent to 2.26 per U.S. dollar.

Auto Production

Brazil’s central bank has held the benchmark Selic (BZSTSETA) rate at 11 percent since April, after raising it from a record-low 7.25 percent in 2013 in order to stifle demand and stem inflation. The economy expanded 0.2 percent in the first quarter, half the pace of the prior three months as family consumption contracted.

Automobile production in Brazil declined 17 percent to 1.57 million units in the first six months of 2014 from a year earlier, as exports dropped 35 percent to 169,457 units, according to car manufacturers’ association Anfavea. Total exports to Argentina fell 20 percent in the same period, according to the Trade Ministry.

The economy of Argentina, which missed an interest payment this week after negotiations with creditors failed, will shrink 0.9 percent in 2014, according to analysts surveyed by Bloomberg. Brazil’s Finance Minister Guido Mantega told reporters yesterday the situation in Argentina currently has no impact on Latin America’s largest economy. Last month Brazil extended tax cuts on cars to stimulate domestic demand.

Argentina Trade

Exports to Argentina fell 22 percent in the first seven months of 2014 from last year as sales of fuel, cars and auto parts to the neighboring country dropped in July, Brazil’s Trade Ministry said in a separate report today. Argentina was Brazil’s third biggest export market through July, it said.

“There’s not much to cling to, at least because the industrial sector is one of the parts of the economy that is most exposed to any problems in Argentina,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd., said by phone from London. “Argentina is a big market, so that adds to the headwinds for industrial recovery.”

Output of capital goods fell 9.7 percent, the statistics institute said today. Production of consumer durable goods fell 24.9 percent. Of the 24 industries studied by the statistics institute, output in 18 dropped, including a 12.1 percent decline in cars and auto parts.

Industrial Confidence

Today’s better-than-expected headline figure is largely explained by downward revisions to both May and March numbers, according to Goldman’s Ramos. May output fell 0.8 percent, revised from a 0.6 percent decline, and March output dropped 0.7 percent, revised from a 0.5 percent slide.

Industrial confidence has fallen in all but one of seven months this year, and in July reached its lowest level on record, according to the National Industry Confederation, known as CNI. Brazil’s real has gained 3.9 percent in 2014, the second-best performance against the dollar among 16 major currencies tracked by Bloomberg.

Subsidized lending from state development bank BNDES has guaranteed competitive credit, and tax cuts are “fundamental” to competitiveness, President Dilma Rousseff said July 30 at an event hosted by the CNI. Aecio Neves, Rousseff’s closest challenger, said a weaker currency seems “absolutely essential” to ensure competitiveness and boost domestic output.

The June 12 to July 13 World Cup also affected industry as local governments declared public holidays on game days, according to Pedro Tuesta, an economist at 4Cast Ltd. Gerdau SA (GGB), Latin America’s largest steelmaker, saw second-quarter net income drop as the monthlong tournament led to declines of steel shipments in its Brazil unit, which represents about a third of the company’s revenue.

Rousseff’s lead over Neves in a possible second round has narrowed. She had 44 percent support to Neves’s 40 percent, according to a July 15-16 Datafolha survey published July 17. The gap of four percentage points falls within the margin of error of plus or minus two percentage points.

Can the Private Sector Really Replace the Export-Import Bank? Beware of the Missing Middle

By Amadou Sy

U.S. small and medium enterprises (SMEs) will probably face more challenges to obtain financing for their exports abroad if the U.S. Congress does not reauthorize the charter of the Export-Import Bank (Ex-Im Bank). The argument for not renewing the 80-year old export credit agency’s (ECA) charter in September centers on its support for large U.S. companies to the detriment of SMEs, in some kind of crony capitalism. According to this reasoning, the private sector should be able to pick up the tab after Ex-Im Bank ceases to exist. This outcome seems to make perfect economic sense. After all, why should the government support the private sector (even if Ex-Im Bank makes money in the process)?

One problem with this argument is that when it comes to helping U.S. SMEs export their products abroad, there may actually be a role for the government to work with the private sector. This is because SMEs typically face problems obtaining financing from commercial banks for export purposes.

A recent survey of seven ECAs by the Berne Union (see Mancuso and David, Berne Union Yearbook 2014, page 78-80), the international association of export credit agencies, highlights the challenges that SMEs are facing and how ECAs are trying to address them. For the purpose of the survey SMEs are defined as companies with less than $69.4 million (€50 million) in revenues and/or 250 employees. The results of the survey indicate that most ECAs are being asked to support SMEs and have started to develop tailored products. The top challenge that SMEs face in accessing foreign markets is obtaining financing, either for their buyers or to support their own growth. Others include (i) understanding market opportunities and conditions; (ii) navigating the complexity of market regulation, taxation and legal issues; (iii) supporting the willingness to take risks going abroad; and (iv) grasping the cost of doing business, including double taxation and trade agreements.

The Berne Union held a meeting in March this year specifically to discuss solutions to the challenges of supporting SMEs. Interestingly, the 40 specialists who participated in the meeting agreed that “banks remain necessary to provide working capital and export finance. But it is exactly these banks that over the last few years have become more reserved in providing that financing.” As it happens, during the recent financial crises, ECAs actually increased their business when banks were pulling out of trade finance.

Reasons for the timid involvement of banks include new banking regulations such as Basel III and Know Your Customer requirements. But, perhaps a better explanation is that the relatively high transaction costs and costs of risk banks incur when financing small transactions are why banks are less involved in the business of helping SMEs export their products and services abroad. In less economically advanced countries, the dearth of SME finance is called the “missing middle” problem because, unlike SMEs, very small firms can get microfinance loans and large firms have access to bank loans.

It is therefore unlikely that the “missing middle” problem will be solved by the private sector alone. Rather, solutions will probably involve schemes where ECAs like the Ex-Im-Bank will work together with commercial banks. For instance, at the same Berne Union meeting in March, experts identified a number of solutions which include insurance, financing and guarantee solutions tailored to the SME segment. It is true that not all ECAs are state-sponsored, but private ECAs such as AIG and Zurich Global Corporate in North America (whose CEO is the president of the Berne Union) are not commercial banks but private insurers. If private banks are unable to do the same job alone, then it is likely that the public sector will have to remain a partner. At a time when new exporting countries (think China) are stepping up their game and ECAs are working to cater more to SMEs, it would be wise to renew the Ex-Im Bank’s charter to support SMEs.