Today, Thursday, March 8, 2018is significant for certain global supply chains. It includes the conclusion of celebrations of the Lunar New Year festivals and the initial signing of the CPTPP global trade agreement.

First, the Lunar New Year officially wraps-up in its multi-day celebration, meaning that Asian based manufacturing and supply chain activities move to normal levels of operational output.

Fat more significant, a collection of 11 nations are set to sign the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the modified agreement the started as the Trans-Pacific Partnership (TPP)

Expected to be among the signing nations are:

 

  • Australia
  • Brunei
  • Canada
  • Chile
  • Malaysia
  • Mexico
  • Japan
  • New Zealand
  • Peru
  • Singapore
  • Vietnam

The United States withdrew from TPP talks shortly after President Trump took office, fulfilling one of his declared campaign pledges. Noting the significance of today, news media is speculating that the President has strong desires to sign the new tariffs of steel and aluminum imports to the U.S. sometime today. No doubt, that will be another social media event.

As seems to be the norm for White House communications, there is speculation that NAFTA members Canada and Mexico may be exempted in the new imposed U.S. tariffs but until the signing occurs, who knows?

According to business media reports, the signing nations are eager liberalize tariff-free trade among trade pact nations. Regarding notables, both Canada and Mexico, participants in NAFTA, will now formally be part of CPTPP, affording new opportunities to export manufactured and agricultural products. This could be a contingency and bargaining chip if ongoing NAFTA re-negotiation talks are not successful. Mexico’s Deputy Economy Minister has issued a statement declaring the country is committed to free trade.

Noticeably missing at this stage are China and the Eurozone countries, each representing significant production and trade activity.  China has been seeking a different trade pact while the Eurozone is likely initiating a wait and see posture.

At the recent Economic Summit held at Davos, President Trump indicated he would be open to rejoining negotiations. U, S. media has been reporting that Economic Advisor Gary Cohn was the principal architect of the President address, and this week, Cohn resigned his post. Other reports including The Wall Street Journal indicate that CPTPP countries have “suspended” some of the original trade pact provisions that were of high interest to the U.S., including international product protections for drug companies.

Current Takeaways

Today’s CLTPP signing has obvious takeaways for non-signing countries and resident supply chains. Clearly, they will be industry-specific, with agriculture, apparel, automotive, high tech, and consumer electronics industry supply chains subject to forms of economic impacts. Many of these supply chains will be busy analyzing various product and component sourcing scenarios over the coming weeks.

Despite the political rhetoric in the U.S. and Eurozone, signing countries may well leverage the new trade pact for new market and product value-chain opportunities.

Indeed, our 2018 Prediction that U.S. Manufacturers will have to manage a very changing tactical and strategic global trade landscape continues to unfold in various dimensions.

Where will the next global trade shoe fall?

 

Bob Ferrari

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