Planning for Trade Issues 2020 | Trade Wars

29 January 2020

A trade war occurs when a country imposes tariffs/quotas on imported goods and the country that was initially penalised retaliates with similar forms of trade protectionism.

Trade wars can be caused by trade imbalances and the introduction of protectionist trade policies can be used as a way to resolve unrelated matters for example the EU-US Large Aircraft issue.

In many instances, the US uses national security (e.g. steel and aluminium tariffs) as the vehicle by which these measures are introduced and in so doing avoids censure from the World Trade Organisation (WTO).

The Trump administration is in favour of the use of trade measures to force their trading partners to align with US policy across a range of issues. In 2019 the United States Trade Representative (USTR) introduced a range of measures targeting exporters in both China and the EU.

Irish cream liqueurs and dairy products were targeted in the latest round of US tariffs against EU companies (introduced as a result of the Large Aircraft issue).

In recent days, the US and China signed ‘a phase one’ a trade deal following 2 years of trade related tension. In this trade deal, the USA have extracted some relatively minor concessions from China. However, having seen this strategy yield positive results, many commentators are of the opinion that the US will escalate its measures against EU exporters. This could put Irish businesses who export to the USA in a vulnerable position.

There are strategies for mitigating exposure to penal tariffs including: 

  • Requesting exemptions from USTR
  • Using cash flow measures like Free Trade Zones or Customs Warehousing
  • Duty drawback
  • Reduce the dutiable value of the goods in question

BDO has a large global presence including in the USA. As such, BDO is well placed to provide local expertise, if required. For more information on our network click here.