Six months and counting

At the time of writing, the US is six months into the Trump presidency. Given his harsh rhetoric during the 2016 election towards the international trade and globalisation upon which the leather industry relies, now seems like a good time to take stock of where things stand policy-wise. After all, the decisions of this administration will probably dictate the future direction of the global leather industry for years to come.

With a stroke of his pen, Trump removed the US from the Trans-Pacific Partnership (TPP) free trade agreement (FTA) within the first few days of taking office and the implications of this action are already being felt throughout the beef, hides and leather supply chain. While the US hides and leather industry would have received marginal market access under the agreement – primarily in Japan and Vietnam – the real impact to the industry is the loss of access to Japan.

The TPP would have put US beef suppliers on an even playing field tariffwise with their competitors in Australia and now the EU (under the recently signed Japan/EU FTA).

Without that additional market access, the US beef industry risks losing its position as the dominant foreign supplier to the highly lucrative Japanese market. On this point, the industry certainly missed a critical opportunity.

After nearly 14 years of being shut out of the rapidly expanding Chinese market, US beef achieved access in June 2017. The Asian nation’s beef import ban – originally instituted due to fears related to the animal disease bovine spongiform encephalopathy (BSE) – became a political football over the years indicative of the greater US/China bilateral relations. Though it will take some time for US beef inventories to build up to meet the new Chinese import standards, the impact on the market is likely to be felt relatively quickly.

On this point, the US industry has won an important victory. It remains to be seen, however, whether the gains in China will offset the potential losses the industry may experience in Japan due to the loss of additional TPP market access.

NAFTA renegotiations

The Trump administration recently published its objectives for renegotiating NAFTA, as required by relevant laws prior to the start of discussions. It is expected the NAFTA countries could begin talks soon. According to the published negotiating objectives, the administration seems to have adopted many of the objectives the US hides, skins and leather industry would also like to see in an updated NAFTA – such as retention of existing tariff concessions, institution of new procedures to address border crossing headaches, and increased transparency in animal health regulations.

The jury is still out on how industry will fare. As negotiations commence, it seems as though its needs will be met. However, if the negotiating climate turns sour, there is much to lose if a scaled-back version of the current NAFTA emerges.

There are a number of other trade policy actions on the horizon that could still affect the US industry, depending on how negotiations progress. In the immediate future, the Trump administration’s focus on instituting import tariffs on steel could have a spill-over effect on the industry should some of the targets of those tariffs – namely China – seek retaliation on US exports. As one of the largest agricultural exports the US sends to China, hides and skins are unfortunately always on the table for retaliation arising from unrelated trade issues.

On the offensive side, the administration’s stated plans of seeking bilateral FTAs with various partners, such as Japan or the UK (post-Brexit), offer the US hides, skins and leather industry somewhat limited benefits in terms of tariff concessions or even regulatory convergence. A revitalised Transatlantic Trade and Investment Partnership (T-TIP) agreement negotiation would do far more to benefit the US industry, even without the UK’s participation.

Overall, it seems the US hides and leather industry has marginally benefitted from the administration’s trade policies so far, specifically with the opening of the Chinese market to US beef. However, the losses from TPP withdrawal have yet to fully materialise, and a number of potential landmines still exist on the field, with the renegotiation of NAFTA and potential fallout from steel tariffs being the most apparent.