GlobalEdgeTalk
GlobalEdgeTalk
Navigating Global Trade: Tariffs, Protectionist Policies, and the Future of International Relations
Join us on Global Edge Talk as we welcome Ala Simms, a seasoned tariff and trade consultant who sheds light on the current turmoil in international trade. Have you ever wondered how the looming 25% tariffs on steel and aluminum might disrupt the automotive industry or why the 10% tariff on Chinese goods is causing ripples across North American borders? Let Ala guide us through the tangled web of negotiations between the US, Canada, and Mexico. As we unravel these complex topics, we consider the potential fallout on consumers facing price hikes and supply chain disruptions while also exploring the role of Chinese plants in Mexico and the delicate balance of free trade agreements.
Venturing into global trade, we tackle the intricate dance of protectionist policies and intellectual property rights, examining how these factors could reshape international relationships. With insights into the US's ambition for manufacturing self-sufficiency, we discuss the potential for retaliatory tariffs and the challenges of maintaining America's trade leadership. Ala helps us revisit the principles of competitive advantage, pondering how nations can harmonize trade for mutual gain without sidelining key partners. Tune in to explore these pressing issues and consider how artificial intelligence might steer the future of global trade relations.
Hi, this is Alex Romanovich and welcome to Global Edge Talk. Today is February 17, 2025. And we have a very interesting and exciting guest, Ala Sims. Hello, Ala.
Ala Simms:Hello Alex and hello our audience.
Alex Romanovich:Ala Sims is a tariff and trade consultant. She's also a tariff and trade executive with a tremendous amount of experience in tariff engineering, in risk management, in trade fluctuations, in trade consultancy and so forth that are on the minds and tongues of many companies out there, especially the ones who are engaged with exports and imports globally. Welcome, Alla, and let's have a very interesting discussion on that.
Ala Simms:Thank you, Alex, and I'm looking forward to it. The discussion of tariffs, how they're impacting nowadays trade, worldwide, US trade, addressing the issues that potential importers that are looking to expand their product into the US market or introduce their product into the US market and how the tariffs could affect that introduction and market expansion into the US market.
Alex Romanovich:Right. So first question is where are we? February 17? Today, we've gone from. Hey, the tariffs are imminent 20% numbers. There was a lot of exchange between Mexico, canada, united States, based on what President Trump did or announced. However, everybody took a step back, took a very deep breath and now we're in the midst of these, probably negotiations or maybe some kind of a waiting game or what have you, but where are we in terms of the tariffs being deployed and being activated, or are we not there yet? Tell us more.
Ala Simms:Yes, we're not there yet. Some directions are clear. Some directions are not clear yet. At this point, we have a pause on the proposed 25% tariff on Canadian and Mexican origin goods with country of origin Canada or Mexico. We have in place the 10% China tariff, which has been implemented on February 4th of this year, and we are expecting the 25% on steel and aluminum to be published tomorrow in the Federal Register and with proposed date of implementation, march 12th. This is, in a nutshell, where we stand now and what is the forecast as well is the implementation of reciprocal tariffs they are called and this will happen after the US trade representatives provide a report to the President Trump's administration on which countries the US has higher tariffs than the US has, and those tariffs will be implemented after that report or not implemented after that report is being out on April 1st that report is being out on April 1st Very interesting.
Alex Romanovich:And so let's also talk about what does that. Mean to be tariffed? Or what does it mean to have the tariffs in place for, let's say, a run-of-the-mill average Canadian company that is, let's say, producing goods or producing maybe it's a food manufacturer, maybe it is a parts manufacturer for the auto industry, or, on the side of the Mexico, for that matter, because of the proximity of the borders, because we're adjacent to each other, the situation is a little bit different from China in terms of logistics, in terms of how these goods are traveling and how they're actually entering the countries, and so forth. Take us through maybe a couple of examples and use cases of a Canadian or Mexican company and then maybe a Chinese company, so that our audience understands visually what it could mean for a company, with the products from the company going back and forth across the border, or for the products from, let's say, a Chinese company entering the port area, either on the East Coast or West Coast.
Ala Simms:Historically, the US has had a free trade agreement, which has since early 2000s, which has interconnected all of our three economies so much that the implementation of extra 25% tariffs on all commodities that come and cross multiple times the borders because you can have, for example, automotive, you can have a part from Canada that comes into the US you have to pay 25% Then goes for further manufacturing process into Mexico and coming back to the US to be exported, for example, anywhere else in the world or stay for consumption in the US, in the world or stay for consumption in the US.
Ala Simms:This could add up to 130%, for example, to the current cost, which is substantial to the automotive manufacturers. Plus, when the USMCA, for example, came into force in 20 replacing NAFTA, you had to have a 75% regional value content to qualify for it, but the regional value content has increased, so you can use only 25% of parts that come outside of the USMCA territory. The concern now with Mexico, for example, is that there's a lot of Chinese plants that are being established in Mexico and the concern with those is the revenue that they're benefiting from. Free trade goes to China, not to Mexico, and this is the main concern that Trump's administration has voiced, and this is something that is concerning at this point. The reason behind this 25% potential increase is to address such social concerns as illegal immigration and drug trafficking to the US, which has been a long-standing issue, and it can be also addressed with any other means or any other actions rather than tariffs, but tariffs were selected by President Trump's administration to address these two main concerns that affect the two borders.
Alex Romanovich:Okay, great that affect the two borders?
Alex Romanovich:Okay, great, yeah, absolutely. That certainly puts this entire topic of tariffs and immigration and traffic through the borders into a very different perspective. Now let me ask you this question so clearly, the companies will be affected. Clearly, the companies that are manufacturing parts or products that have been traveling back and forth, especially for the assembly plants and other entities like that, will be affected. The question that begs in everybody's mind is how will that trickle down to the consumer? Is it true to assume that all of this activity, all of this isolation, if you will, or trade balance mitigation or something like that, is going to indeed impact the consumer in terms of higher prices, in terms of scarcity of products, in terms of availability of those products and maybe even the quality of those products? What can you say about that?
Ala Simms:Yes, historically, all the tariff increases in the past have affected the consumer.
Ala Simms:First of all because there is direct and indirect impact on the manufacturing and on the supply chain. Supply chains are becoming under more and more stress to mitigate their risks and the risks would be to find any other suppliers it might take time too. And also, in the case of this, tariffs are put in place to protect the domestic manufacturers. Are these manufacturers ready to assume increase in manufacturing capacity in the US? Do we have such a capacity? Do we have the investment ready, the capital ready to invest here to face the demand that has previously been satisfied from the imports outside the US? So this clearly needs to be assessed and need to be valued and how the market will behave. Only time will show, if the tariffs are put in place, how manufacturers and supply chain will react to the tariff increase. All only time would tell. But from the past consumer prices have been consistently up. If tariffs are put in place because domestic manufacturing was not able to face all the 100% of demand that is in place in the US.
Alex Romanovich:So how should an American company prepare itself for this? I guess there are two forces. Potentially, there are two risks. There might be multiple risks, but there are two immediate risks that we see.
Alex Romanovich:Based on this Number one, the goods coming into the company or being procured by the company will cost more.
Alex Romanovich:That's a risk, and that means that they have to make a decision.
Alex Romanovich:Whether they're publicly traded or private company, they would have to make a decision to either trickle down those costs to the consumer or to their supply chain partners, or their buyers, if you will, or to absorb it somehow and impact the profitability, which obviously the shareholders will not like like. The second risk, I should say, is the fact that they may engage in what you call a tariff engineering type of an assessment or a risk mitigation type of an assessment. They may start looking for other ways to procure these parts, products, parts of the assembly line, what have you? It could be food items whatever, ingredients whatever, and what that means is that they may look for other suppliers that are not necessarily tariffed or taxed, and at least not now. We don't know what's going to happen next If everybody starts buying from Vietnam instead of China, or Pakistan or India instead of China, or even start buying from the United States. Obviously, they're not going to be tariffed, according to President Trump, but anyone who is outside of the United States, the risks are the same right.
Ala Simms:Right.
Alex Romanovich:So there are two or three visible immediate risks. What should the company do? How should the company prepare itself? And what is tariff engineering all about?
Ala Simms:There are several risk mitigation strategies that manufacturers or supply chains could implement in order to mitigate the risk of increasing pricing or passing on the increased cost onto either partners or consumers. Increased cost onto either partners or consumers. First, you can negotiate with your supply chain partners. You can negotiate lower margins, lower profits, which is not very popular but it is an option.
Ala Simms:You can utilize the completely legal term tariff engineering commodities that have higher tariffs in place and they're imported under a specific tariff code into the United States. You can modify your production to introduce those commodities that have lower tariffs into the US. You also can utilize to the maximum free trade zones in the US. Free trade zones mean that you can import a part that you're going to use in your production into a free trade zone with no tariffs on that part, and then you pay the tariffs only on the outcome what you have produced and then you can mitigate risks this way. So utilize the free trade zones to the maximum capacity. Also, you can look into origin of your parts not to be from those countries which have high tariffs currently under US Customs and Border Protection implementation. Be flexible and prepare yourselves for the upcoming changes and regulations.
Alex Romanovich:Thank you for that sound advice. Obviously, there's a lot involved. This is not a simple matter and requires a professional like yourself to attend to some of those issues and look at some of the strategies and tactics to implement. Finally, we don't want to make this too long of a discussion because, first of all, it's very interesting. I'm fascinated by this. I'm sure a lot of our listeners will be fascinated by this as well. Just to verify, just to validate this is only for manufactured goods, right? If you're a company that is in the professional services space, if you're a legal company, if you're a service provider, if you're a software developer, if you are an intellectual property-related type of a company or something like that, this may not even apply. Is that correct? Is that a correct statement?
Ala Simms:It might not apply from imports perspective but it may apply from export control perspective and there is a lot of movement at this point to increase export control of US technology being exported outside the US to China. It's a big deal right now and all the export licensing from Bureau of Industry and Security are on pause at this moment until there is more validation, more research and more instructions how to move forward Commodities as such. They're affected if they're something tangible. If they're something intangible as services, they are not so affected unless there is an export control put in place either in the US, outside the US. If you have any software developers in India, does India have any controls to share with you the technology that has been produced or has been implemented or an IP, intellectual property rights as well here in India and that can be shared in the US? From this perspective, yes, US From this perspective?
Alex Romanovich:yes, so from that standpoint, what you're saying is that the intellectual property may be, or the movement of intellectual property or the licensing of that intellectual property, for example, patents, the patent office or the issuance of US patents may also be impacted by this as well. Is that a true statement?
Ala Simms:It is, yes, it is. So it goes hand in hand with licensing and technology sharing outside the US and from other countries in the US or anywhere else, and these controls are being tighter and tighter, it seems reasons why there is China and US. They also always have been competing in the space of, or India and the US in the space of software development, and there has been a lot of questions about intellectual property rights with Chinese goods and services and technology as well. There's a lot of movements going there too.
Alex Romanovich:That's fascinating as well. Final question With all of these activities, with the protectionism of American goods, american manufacturing, american intellectual capital and so forth, how quickly do you think actually, two-part question how quickly can the United States establish alternate logistics capabilities, alternate manufacturing capabilities? Because that's the again, that's the message coming from the White House, basically saying, look, we want America to manufacture more, we want American steel to be a more prevalent product, we want American workforce to grow, and so forth and so on. How quickly do you think can the United States attend to this and scale up, if you will? That's the first part and the second part what if the rest of the world is going to get fed up with the United States, with all of these limitations and they may not necessarily like that and say you know what? Let's free up the trade imbalances, let's actually release, let's loosen up some of the limitations that we may have between China and Europe, for example, or between Europe and South America, or between Mexico and South America, or between Mexico and Canada, and so forth and so on.
Alex Romanovich:We're fed up with the United States. They're difficult to do business with Trump. We may or may not like the guy and, frankly, we can find, we can source the products, we can source the intellectual property, we can source the intellectual capital excuse me, seeing that, we manufacture it. We understand the technology. Speaking for Chinese now, we have plenty of innovations, we've built an enormous amount of infrastructure, we know our stuff right and if we need something, we could go to Europeans, we could go to India, and so forth and so on. What do you think can potentially happen with that? So, first, how quickly can US scale and replace augment? And two, what is the risk mitigation strategy for the US? What if scenario where the rest of the world will actually arm against the United States, economically of course, and say we're fed up with this?
Ala Simms:Yeah. So to the first part of the question how fast, it all depends on the industry. For steel and aluminum, for example, we can be ready. And this is the major concept of protectionism of local manufacturer. Is it good or bad? Is it good for the local manufacturer to be protected as much? Is it good or bad? Is it good for the local manufacturer to be protected as much? And will it be in place indefinitely? Will it be in place only for a short period of time, until Trump's administration is in the White House? Currently? What should we expect in four years? Will those tariffs, if they go down? Will the manufacturers stay the same, protected or not?
Ala Simms:And protecting too much local manufacturers is a good thing and a bad thing. It's twofold. You do not see the competition from outside the US. Then you become not so competitive on the international level if you're too much protected. But if you have the capacity to and you have access to the international markets, you can expand, of course, in this way I assume this will. All the logistics will eventually come up to some kind of equilibrium. They will, but how soon or fast it depends how ready they are. So it can happen fast, it can happen not so fast and to the second part of the question, about the rest of the world.
Ala Simms:So, the rest of the world? We have already seen steps that China, for example, has filed a protest with World Trade Organization on those 10% that have been imposed on Chinese goods by the US. And all those are called retaliatory tariffs, something that are expected from other nations in response to your tariffs, and they can cause damage to your own economy because you export to other countries. You depend on your exports and where to place your commodities outside the US, and this brings revenue. It's trade deficit or trade surplus, and this Trump administration has been put a lot of accent on facing or on resolving those trade imbalances or trade deficit that the US currently has with different partners around the world. The rest of the world will place the retaliatory tariffs on the US and who will benefit from it? I do not see anyone who would benefit from it. There will be both parties. It's a lose-lose situation, not a win-win situation, unless you go and negotiate trade.
Alex Romanovich:Are you trying to say that you're going to negotiate some kind of balanced approach or so forth?
Ala Simms:Which will be win for all parties. Right, which it can be yes for all parties.
Alex Romanovich:The issue here is that that's an enormous task. Maybe artificial intelligence is going to help here. It's an enormous task to rebalance the entire equation. It's almost. How do you rebalance the timing in the engine right and how do you rebalance a very complex cog in the wheel type of situation where so many different moving parts, so many different moving pieces are involved. With that said, do you feel and that's going to be definitely a final question I'm fascinated by the topic. Our audience is going to be fascinated as well.
Alex Romanovich:Do you think that Trump and his administration have a valid point? Do you think that America has been treated unequally, has been treated with abuse and a certain level of dismissal, if you will? That says look, you're one of the largest consumer markets, you're one of the largest economies. You can tolerate this, you can absorb this. So because we're doing so much business, because your consumer is benefiting, it's okay for us to protect against your products or maybe your products are not that great to begin with, for whatever reason and it's okay for you to consume our products in much bigger capacity. Do you think we have a point? Do you think Trump has a point?
Ala Simms:Trump's administration has a point to some extent, and they have been trying a lot to reduce the trade deficit with various countries around the world. Let's not forget the basics of international trade, and this is competitive advantages. Competitive advantage introduced many years ago by Scottish philosopher Adam Smith in his Wealth of Nations, and he says that each nation can be best in a certain way, in a certain industry that other is not. For example, a very basic example is avocados from Mexico. In the US we cannot produce avocados due to climate conditions or other factors which do not give us any advantage to grow those in the US. So trade internationally just balances itself as it is.
Alex Romanovich:Alla, it's been a fascinating conversation. We definitely want to have you back on our show. A lot of insights, a lot of amazing examples and a lot of good advice, and our audience can certainly continue to tune in. I want to thank you and good luck with what you're doing. Hopefully, all of this is going to balance itself out and America is going to continue to have a leadership role, but, at the same time, not at the expense of negatively exciting our partners, our friends all over the world. Thank you so much, ola.
Ala Simms:Yes, you're welcome, alex, Thank you.