Are rules of origin the next front in the trade war?

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How do rules of origin work? | The fallout from Biden’s 301 tariffs continues | Who pays for tariffs and will they exacerbate inflation? | China, Japan, and South Korea restart FTA talks | More research from Hinrich Foundation

How do rules of origin work?

The Congressional Research Service provides a report on rules of origin in international trade, and the World Trade Organization serves as a repository for international agreements on rules of origin. The Center for Strategic and International Studies reports on the impact of rules of origin on supply chains using USMCA’s auto rules as a case study. A recent paper from Keith Head, Thierry Mayer, and Marc Melitz in the Journal of International Economics describes the Laffer curve for rules of origin. Ed Gresser of the Progressive Policy Institute finds US auto production unchanged since the introduction of USMCA rules.

Mentioned publications

1. International Trade: Rules of Origin – Vivian C. Jones and Liana Wong, Congressional Research Service, March 3, 2020
   A primer on rules of origin in international trade agreements and under US practice.

2. Rules of origin – World Trade Organization
   The WTO’s landing page for resources on rules of origin.

3. The Impact of Rules of Origin on Supply Chains: USMCA’s Auto Rules as a Case Study – William Alan Reinsch, Jack Caporal, Madeleine Waddoups, and Nadir Tekarli, Center for Strategic and International Studies, April 2019
   CSIS estimates the impact of rules of origin changes on the North American auto supply chain.

4. The Laffer curve for rules of origin – Keith Head, Thierry Mayer, and Marc Melitz, Journal of International Economics, February 25, 2024
   A recent paper finds that more restrictive rules of origin may reduce incentives to source parts within a free trade area.

5. Trade Fact of the Week: U.S. auto production unchanged since 'USMCA' replaced 'NAFTA' in 2020 – Ed Gresser, Progressive Policy Institute, May 15, 2024
   Despite rules of origin intended to relocate production to the US, not much has changed.

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The fallout from Biden’s 301 tariffs continues

How is China preparing to respond? A Chinese auto industry expert urges temporary tariff hikes in The Global Times, as translated by Ginger River Review. Natixis Research asks what to expect next after US tariffs are imposed on China.  USTR Katherine Tai explains her recent actions in an op-ed in the Financial Times, while leading economists convene in Berlin and call for new economic policies to win back the trust of the people.

Mentioned publications

1. Chinese auto industry expert urges temporary tariff rate hikes on imported cars with large engines – interview with Liu Bin, Global Times  and article by Ma Xue, China Institue of Contemporary International Relations (both as translated by Ginger River Review), May 21, 2024
   A Chinese expert in automotive trade predicts a 25% tariff will be applied to imported cars.

2. New US tariffs on China more effective than symbolic: What to expect next? – Natixis Research, May 22, 2024
   How will China respond to Biden’s 301 tariffs?

3. Trade must transform its role in the social contract – Katherine Tai, Financial Times Op-ed, May 28, 2024
   The Biden Administration approach aims to democratize economic opportunity.

4. The Berlin Summit Declaration – Winning back the people – Forum New Economy, May 29, 2024
   Respected economists from around the world sign a declaration calling for economic policies to win the trust of the people.

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Who pays for tariffs and will they exacerbate inflation?

The Wall Street Journal finds disagreement among economists as to whether tariffs increase inflation. Kimberly A. Clausing and Mary E. Lovely, in a study for the Peterson Institute for International Economics, explain why Trump’s tariff proposals would harm working Americans. Brendan Duke and Bryan Mulholland of the Center for American Progress argue that Trump’s tariff plan could cost American households $1,500 per year. Deutsche Bank finds that Trump’s tariff threat would undermine rate cuts and boost inflation, per Bloomberg.

Mentioned publications

1. Tariffs Push Up Costs. But Not Always Inflation – Andrew Duehren, The Wall Street Journal, May 19, 2024
   Economists debate whether tariffs exacerbate inflation.
2. Why Trump’s Tariff Proposals Would Harm Working Americans – Kimberly A. Clausing and Mary E. Lovely, Peterson Institute for International Economics, May 2024
   A new study finds that Trump’s proposed tariffs would cost a typical household at least $1,700 in increased taxes each year.
3. Trump’s Tariff Would Cost the Typical American Household Roughly $1,500 Each Year – Brendan Duke and Bryan Mulholland, Center for American Progress, March 27, 2024
   The Center for American Progress finds that Trump’s proposed tariffs amount to a $1,500 annual tax increase on households.
4. Trump’s Tariff Threat Set to Derail Rate Cuts, Deutsche Bank Says – Bloomberg, May 30, 2024
   New trade restrictions under Trump could boost inflation and forestall interest rate cuts.

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China, Japan, and South Korea restart FTA talks

What are the prospects for trilateral trade talks after a five-year hiatus in which geopolitical realities have changed so greatly? China hails a new beginning with Japan and South Korea, reports the Financial Times.

Mentioned publications

1. China hails ‘new beginning’ at summit with Japan and South Korea – Financial Times, May 27, 2024
   After a five-year hiatus, China, Japan, and South Korea will restart free trade agreement talks.

More related analysis from HF:

• What EVs tell us about global trade's troubles
• A rough road ahead: Electric vehicles and semiconductors navigate geopolitics
• The effect of China’s EV dominance on the global automotive sector

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