Trump’s Tariffs Could Spark Trade War, Florida Chamber Warns
The statewide pro-business group warns of a negative impact on Florida as a global trade hub.
The Florida Chamber of Commerce, a statewide business group closely aligned with Gov. Rick Scott, warned Tuesday that new tariffs could spark a trade war and hurt Florida jobs and families.
President Donald Trump has proposed steel and aluminum tariffs on some of America’s closest allies, including Canada, Mexico and the European Union.
“The increasing prospect of a trade war could put Florida’s economy at risk and negatively impact consumers, families and jobs,” the Chamber warned in a statement. The group said unfair trade practices by “bad actors” are best addressed “in a targeted and focused manner.”
“Extending the tariffs to our allies and trade and investment partners is triggering harmful targeted retaliation,” the group said.
A Simple Guide to China’s Devaluation of the Yuan
China devalued the Yuan against the U.S. dollar
Why did this happen?
China devalued its currency against the U.S. dollar to make Chinese goods cheaper and boost exports after Chinese exports declined 8.3 percent in July.
What does this mean?
The Yuan is loosely tied to the U.S. dollar and has been strengthening as the U.S. economy picks up. The U.S. Fed is considering a rate hike in the near future as the U.S. economy continues to move ahead, thus further strengthening the dollar. As China is an export-oriented economy, this potential increase would put greater pressure on declining exports.
What are the impacts to the U.S.?
A cheaper Yuan will mean a decrease in U.S. exports as Chinese products will be less expensive. As other nations consider the impact of the Chinese devaluation to their exports, they too may devalue their currencies to remain competitive with the Chinese goods further putting pressure on US exports.
What are the Impacts to other parts of the world?
The Chinese currency implications go beyond the devaluation as it’s a symptom of its overall economic health as the Chinese growth engine continues to slow down. This will have far reaching implications for emerging markets that export heavily to China, particularly commodity exporters heavily dependent on China like Brazil, Russia, South Africa, Indonesia, and Malaysia. A weaker yuan is also a concern for developing nations that compete with China in exporting similar goods and services to similar destinations. Taiwan and South Korea face some of the greatest risks, but Thailand and the Philippines may also be affected and even Mexico may feel the impact of cheaper Chinese goods.
All this comes at a time when emerging markets are facing other factors and issues are affecting their growth. While larger economies are able to sustain and mitigate the Yuan depreciation, China is still the world’s second largest economy, and emerging markets which heavily depend on China are important to the overall global economy. Their health will have an impact on global markets.
What does this mean for Florida?
The Chinese currency depreciation will have an impact on Florida exports, which compete with China. Florida will need to remain vigilant to the currencies of Florida’s trading partners such as Taiwan and Korea, who are strongly tied to Chinese trade. As their currencies may weaken as well, adding to the fallout of the Chinese devaluation. The Florida Chamber’s International Program will keep you up to date as this issue unfolds.
NEED MORE INFO?
For more information on how this affects Florida’s future, please contact the Florida Chamber’s Chief Economist Dr. Jerry Parrish at email@example.com.
A Focus on Brazil and Mexico
For the fifth time this year, economists have reduced their economic forecasts for Brazil for this year and next year. Economists also increased their estimate for the 2015 inflation rate to 8.97 percent from 8.79 percent, according to a weekly central-bank survey.
The government of Brazil announced at the end of June the launching of its National Export Plan (PNE) to increase exports as a means of helping prop up its weakened economy. The plan will focus on five areas: access to markets, commercial marketing, ease of trade, export financing guarantees and the improvement of the fiscal system related to foreign trade.
Brazil’s president recently outlined a $65 billion infrastructure plan to sell to the private sector new concessions to build and operate nearly 7,000km (4,350 miles) of roads, as well as four large airports and a number of ports and railways.
Under the package, Brazil will offer concessions worth about R$66bn for roads to connect soybean growers of the interior to ports, R$86bn for railways, R$37bn for ports and nearly R$9bn for airports, including for the cities of Salvador, Florianópolis, Fortaleza and Porto Alegre.
President Rousseff stated that her administration will directly engage in activities that will expand and diversity market access for Brazilian products and will be making more official trips abroad to support the plan.
Mexico’s Global Economic Activity Index rose 2.4 percent in April compared to April 2014, an increase fueled by growth in the agricultural sector.
The Mexican government will hold its first of several petroleum auctions this week. This will effectively end the monopoly of state-owned Petroleos Mexicanos (PEMEX) which began in 1938 when the country’s oil fields were nationalized.
The auction will cover 14 shallow-water blocks in the southeastern Gulf of Mexico. Seven groups and 17 companies — including two of the world’s largest, Exxon Mobil Corp. and Chevron Corp. — have prequalified to bid. Mexico will auction onshore fields later this year, followed by auctions of deep-water and shale fields.
Mexico is expanding beyond the low-wage, low-value manufacturer that it was when NAFTA was first implemented over 20 years ago. With an increasingly skilled Mexican workforce and a growing middle class, foreign direct investment into high-value manufacturing facilities has been increasing with more in the works.
This is a near-shoring trend that was recently fueled by the west coast port congestion which triggered many to review their supply chains and look for alternatives that would provide them with more consistent and reliable production centers. Mexico has multiple routes of entry in the US and offers reduction in cost of transportation and improved speed to market.
Mexico is also the second-largest source of high-value, high-tech products such as cell phones, gaming consoles and computers, after China.
The Mexican government is moving to enhance its competitive position by investing heavily in road, rail and aviation infrastructure improvements and by streamlining its customs procedures.
- The U.S. Department of Transportation recently began permitting Mexican motor carriers to apply to conduct long-haul, cross-border trucking services. Under this program, Mexican trucks must be inspected and are required to meet the same safety requirements as U.S. trucks.
- Mexico is continuing to work with Canada and the U.S. to improve customs harmonization and signed on to the Wassenauer Agreement on export controls last year which, along with implementing an export control system along with its single platform on imports they now have greater trade compliance
- Cargo security is improving and IP protection is as strong as or stronger than in many other countries around the world.
Opportunities for Florida Firms:
Over the next four years, the Government of Mexico plans to invest more than $600 billion to modernize its energy, transport, telecommunications, and water and environment sectors. In order to support the country’s ambitious reform efforts and position U.S. firms for success implementing critical infrastructure projects, USTDA developed the Mexico Infrastructure Project Resource Guide to provide U.S. industry with details on Mexico’s infrastructure sectors and specific infrastructure development plans through 2018. The resource guide includes over 25 project profiles, complete with real-time market intelligence, detailed project plans, contact details for key decision makers, procurement timelines, and planned financing mechanisms.
Project profiles in the guide are separated by sector, and include energy, transport, telecommunications, and water and environment. The full guide can be viewed and downloaded on USTDA’s website.
Latin American Outlooks and What They Mean for the U.S. and Florida
The region’s economy is projected to grow only 0.1 percent this year according to economist projections. The combined forces of worsening terms of trade, a stronger dollar, a slower Chinese economy as well as economic crises in Argentina, Brazil and Venezuela are all hampering growth.
What do these changes mean for the U.S. and Florida?
- Reduced Exports:
Weaker demand and a stronger dollar impacting Latin American markets may result in reduced U.S. and Florida exports.
- Decreased Tourism:
Stalling economies have caused tourism and business travel to the U.S. to take a hit. Florida’s tourism industry, a crucial part of the state’s economy, may suffer.
However, there are several positive opportunities for both the U.S. and Florida within several nations:
Chile’s industrial sector remains stable for the remainder of the year. While copper demand has taken a hit, renewable energy and construction sectors are likely to be the two major growth sectors in 2015. A stable political environment, rising domestic demand for energy, and a significant pipeline of infrastructure projects are expected to drive growth in the short run.
Colombia’s industrial sector remains stable and diversified. Continued domestic demand from an increasing middle-class population and steady investment are expected to create GDP growth for the rest of the year. Reduced oil prices will have a minimal impact on growth.
Mexico seems to be a bright spot for the Americas. A steady improvement of the U.S. economy and a depreciated PESO is expected to increase Mexican exports as well as foreign investment inflows in 2015. Reformed laws which have opened up its energy sector are also expected to attract significant investment.
Even more opportunities arise from the area as a whole. Latin America, with a population of approximately 600 million people, is home to nearly 15,000 “ultra high net worth” individuals, or people with fortunes of at least $30 million, according to the luxury industry consultancy Wealth-X.
The number rose 5 percent last year, while the number of billionaires in Latin America rose to 151, a 38 percent increase resulting in the fastest growth rate for billionaires of any region on earth.
The region’s largest economies, Mexico and Brazil, remain the largest generators of growth and wealth. Mexico is the world’s second-largest market for private jets, behind the US, with Brazil poised to surpass it within the next decade, according to a recent market study by the Brazilian jetmaker Embraer. According to the market research firm Euromonitor, the Latin American luxury market will total $26.5 billion in 2019, up 88.8 percent from 2014 boasting the strongest growth in the world.