Hello, hello everyone. Welcome to our webinar this month. My name is Nick. I'm a director with our Onyx Group. I'm going to be your host and moderating questions throughout the event today, and shortly, I'll be introducing our speakers, so we offer different sessions each month, different topics, and this one's a bit unique from what we've offered if you've attended our webinars over the last year. Today is going to be featuring mostly Q&A with you, the audience. We will start with setting the scene of kind of where we stand today with the state of trade and this protectionist policy environment that surrounds everything we're going through right now, then we'll go into questions that we looked to the registrations that came in, a lot of great comments and questions from everyone, so we tried to sort of pull a compilation of those. We'll start with that.
And then we'll open up the live Q&A towards the second half of the hour. So that's the plan for today. Before we get going, just a few administrative details, about 60 minutes length for the webinar today. And I'm just highlighting for today the Q&A box. So kind of more than ever for this session, we want to hear from you with your questions. So feel free to just start sending those in even now. We expect a lot of questions today, obviously a lot going on out there. So ignore the thing at the bottom that says they'll be addressed at the end. They will be addressed throughout today. We will send out a survey today. One thing that's also a little different for this session is we don't have a presentation to distribute today or a recording given sort of the open Q&A nature of this.
We won't be sending materials out. So those of you attending live, great. You get to see this, but the materials will not be available later for others. Okay. So a note that we host a webinar every month. This month, you get two, actually. So there's one in three weeks. The last week of February, there's two options here. We'll be looking at just with the surge in Chinese exports to various countries abroad. We'll be looking at how kind of the dynamics that's going on there and how other regions view that situation, how they're responding or engaging in some manner. And there are two options there. So one's more for Americas as one's kind of more for Asia-Pacific audience. Just keep that in mind. Okay.
Then a couple of other ways to keep up with Onyx, to be notified of events like webinars, follow us on LinkedIn. We always announce those there leading up to each webinar. You can scan the QR code and follow us right now. You'll see also a sampling of different types of analysis, short form. We also link to longer form pieces, which show up on our VantagePoint blog, but we'll also post those on LinkedIn as a link. You'll be notified to go to the blog and read up on those materials. You can also go directly to the VantagePoint blog and subscribe there. Right now, you get a monthly digest, so sort of a compilation of our blog, short pieces, announcement of webinars, and other things. All right.
I have a big audience today, and I imagine there's some of you who are new and haven't attended an Onyx webinar, maybe haven't talked to us. So I would always just like to kind of give a quick overview of who we are. So we are a division of Expeditors, and we help companies build adaptable and resilient supply chains. Just given all the different disruptions and risks that exist around the world for multinational firms, we're here to be your advisor and engage with you, whether it's to solve specific questions in a project form or to be an ongoing partner throughout the year. And that comes in different forms. On that note, we have different service lines, and we serve lots of different functions across companies like yourselves.
This touches on trade and compliance as well as transportation and logistics, but also sourcing and procurement, looking at cost questions, footprint, country risk, and then strategy, overall enterprise risk management questions for companies. So lots of different services. If you're interested in any of these, feel free to reach out to me or any of our speakers, and we'd be happy to set up a private meeting with you. Okay. So I'd like to introduce, we have two primary speakers today. I'll be fielding questions, and we have people in the background helping as well. But essentially, these two speakers here are going to be the ones answering these questions. So first of all, we have Fernanda Kroup, our Vice President, Head of Onyx Strategic Insights. Fernanda has more than 20 years of experience in management consulting, geopolitics, and macroeconomic analysis.
She's lived and worked in four continents, serving clients in technology, heavy industries, basic metals, financial services, retail, and consumer goods. Also, Melissa Taylor, our Director of Geopolitical Research. She oversees the delivery of policy analysis at Onyx, providing clients with actionable insights to navigate the changing world out there. She's done a lot of work in risk advisory and analysis for multinational firms, tackles issues that cross geopolitics, industry, and supply chains, that work spanning over 15 years, so those are our two speakers so at this point, we're going to shift. I'm going to hand it off to Fernanda, and she's going to provide some background that will, I think, prime everyone for questions. If you don't have some already, this will help elicit some more so I'll let Fernanda take over, and then Melissa and I will come back in a little bit.
Thanks, Nick. Welcome, everybody, to our webinar here. We thought we would start with a little bit of a recap and also just setting the stage here, right? In our 2025 outlook, for those of you that have seen it and those of you that haven't, we're looking at three main aspects, right? From a macroeconomic, sourcing and production, supply chains in general, we have a delicate return to growth, but these uncertainties from tariffs, right? So really increasing costs across the board from a sourcing perspective in different countries, right? So that's our baseline, right? Outside of any tariffs. Now, we have a looming trade war, if you will, on the global trade side. Is it going to happen or not? That's the big question. But it does open up for retaliations and increasing costs as well for all of us.
And then just so we don't lose sight of everything that's happening while we're discussing trade and protectionism, we do have geopolitical hotspots and the Houthis disrupt the norm. We don't expect meaningful improvement there, so it is a challenging environment where we have risks basically escalating, and it just puts a lot of premium on transportation, logistics, compliance, and sourcing working together to anticipate these risks. We're looking at a sharp potential expansion in tariffs in the U.S., a mishmash of trade measures that are already materializing, but also domestically focused on taxes and rolling back with Biden-era sustainability measures, Mexico and Southeast Asia in particular going all in on nearshoring and de-risking, but with Mexico also looking at potential further action on Chinese imports. The E.U. standing by, but ready to retaliate.
And then China, right, who has been working for quite a while now to be ready to retaliate and preparing for a Trump administration. Now, what just happened, right? Just as we go into this live Q&A, just a summary of what we know so far when it comes to Mexico, Canada, and China. We do have suspended action on Mexico and Canada for now. All products 25%, Canada energy 10% tariffs with very limited exemptions from what we've seen for Canada just for donations, media, or printed materials, and anything that has been entered for consumption by February 7th. A rollback of De minimis, and that is particularly significant for those of you out there when it comes to imports from China and the impact on air capacity.
The question being whether that will be sufficient to dissuade consumers in the U.S. from buying from certain websites such as Temu and Shein. Now, so far, the tariffs on China are still of immediate effect. President Trump and Xi Jinping will be talking today, and so we will see what will come out of this, but at the 25th hour, Canada and Mexico managed to suspend these measures. Mexico promising 10,000 troops to the border. Canada threatening to retaliate, but also agreeing to work on border issues, and China has already sort of begun retaliating with 15% on coal and LNG, 10% on oil, trucks, and farm machinery, an antitrust probe on Google, and an expansion in the minerals export ban. What is behind this as we go into the Q&A, and I'll hand over to Nick in a second just as we set the stage.
There's a relative unwillingness or willingness, if you will, glass half full, half empty on tariffs in this administration. There is a resolve to address certain issues such as the deficit in trade, such as compensating for tax cuts, concerns with immigration, and fentanyl. There are real inflation concerns inside this administration as well. This idea that they were elected on sort of a two-pronged platform, immigration and inflation. If you start stoking inflation, that is a political problem for this administration. I think it's important to also note that tariffs are sticky over time. They're incredibly the longer it takes for you to remove them, the stickier they become. Just look at 232 that's still with us today, 301 still with us today. Essentially, when you impose tariffs, you create a constituency behind them. You create companies that start to depend on them.
You create a political dynamic behind them. And if you try to remove them, it is almost either you're arguing that you've succeeded and that has a political cost. So is the border fixed, for example, right? So it's incredibly difficult to remove without political cost. There's a desire, though, to show resolve. The administration was emboldened by the results with Colombia. And there's a concern, a lingering concern, as I said, about deficit. So it's a delicate balance here between showing resolve, but also avoiding actually imposing these tariffs. The administration, though, is able, right? There's broad congressional support here. There are some budding concerns about congressional powers and the expansion of the executive. But so far, a lot of support. But there's this uncomfortable relative vagueness and openness on goals and what constitutes success. Some of it is a deliberate political strategy. So you give yourself maximum flexibility.
But it also creates a lot of uncertainty for other countries and for companies in particular because you don't know what the bar is that you're trying to meet, right? So what constitutes an improvement in the border situation? We don't have specific KPIs here, right? And as I said, there's a political cost of removing these measures. So think about the border. Think about domestic manufacturing. Have we created enough jobs here, right? Energy. Are we self-sufficient? Are we looking for perfect autarky? Or how much does it need for us to consider that China has been contained in its global ambitions? How much lost tax revenue does one make up for? And what constitutes improvement on the trade deficit? So that creates the uncertainty that I was talking about before. Stems primarily from this, right?
But once tariffs are in place, again, it's very difficult to remove them without political cost. Now, let me turn over to Nick for the questions.
All right. So we have a lot of questions. I'm just going to say something kind of at the outset in that I know there's a lot of customs procedural type questions about what do the regulations say? Do these tariffs apply if the goods are on the water? What if they're transshipped through? Really specific questions. We're not really here to answer those. We're going to be looking at, I would say, sort of a lot of the macro drivers. How are other countries responding? What are we forecasting? Potential scenarios. So just kind of expectations in terms of the types of questions we're going to answer today. All right. So we've got Melissa here now, and then still Fernanda. So all right.
So I'm going to start off just with a question, and I'll let either one of you field it, and you may each have a take on this. So starting broad here. So state of global trade right now. Is it at the point now where protectionism has surged so much and think maybe not just the U.S., but other countries too, that it's at a point where it's going to be a lasting trend, 10+ years? So Melissa, see you nodding your head. Any initial thoughts to that?
Absolutely, so I think to start out, it's worth saying that we're still at a historically very low level of protectionism, right? If we take the very long view, however, this trend towards being more protectionist for industry is absolutely in my mind here to stay for some time. A lot of the international trading system is built around a sense of not just trust, but checks and balances, and those checks and balances aren't currently operating, and that trust isn't there, and I don't expect that to come back quickly or easily. I do think that the exact form and the degree is yet to be decided. I think with what we saw yesterday with significant possibility of 25% tariffs, I mean, that indicates a pretty significant movement towards protectionism.
And unfortunately, it takes just one major economy to move down that path to really open the doors for other countries to explore that. So depending on what we see out of the U.S., it really indicates how quickly we're moving down that path and maybe even how far we go. So there's still a lot to learn, but I do think we're definitely heading on that trajectory. What do you think, Fernanda?
Yeah, Melissa, I agree with you. I'd like to say that it's not just Trump and it's not just this administration or what is happening today, right? It's been a long time in the making. That Protectionism, that idea that ultimately what everybody wants to do is to reshore production as much as they can or bring production to their own countries and export as much as they can, which in the math doesn't work out, right? But this idea that you need to control manufacturing, especially for advanced technologies, as your ticket into a more secure future is widespread. Even for Mexico, as we were talking about in our outlook, the idea is to go as upstream as you can, right? So bringing in production that was previously in China into Mexico. Now, Mexico's imports from China have increased considerably in tandem with nearshoring to Mexico.
The idea is that Mexico should not be buying supplies anymore from China. It should be producing it themselves. The EU is also looking at bringing in more production. Everybody kind of has the same plan and kind of uses the same tools, if you will.
All right. Yeah. Thank you both. So Fernanda, you mentioned China there. Let's talk about China a little bit. I'm sure we'll talk about it maybe more than a little bit today. So thinking about kind of where China was, say, 2018, 2019, Trump's first term and the original Section 232, Section 301 tariffs that came in place there. So China was in a very different economic position back then, much stronger, I would say, than today. So with that in mind, what kind of reaction do we expect, Fernanda, from China this time from U.S. tariffs? I know we saw some stuff overnight, and it's fresh off the press there. But maybe more broadly to just China's position, given their state of economy and some of the internal domestic pressure they're under right now.
Yeah, no, of course. I should say that today's tariffs affect products of China, right? And the suspended tariffs on Mexico and Canada, products of Mexico and of Canada, right? The idea is to target those relationships, right? Now, China has been waiting for this for a long time. And in the past two years, China has adopted measures that would make it much faster for it to retaliate if and when necessary, right? They were ready even for, let's say, a second Biden administration, right? Now, China is all in on the manufacturing side. The original plan was to turn the economy around and make it a consumption-led economy where domestic consumption has a greater impact on GDP than, say, exports and be less dependent on that. The plan didn't quite work out for a variety of reasons. Consumption in China is serving a crisis right now.
Consumers since the pandemic have felt rather insecure, right? For a variety of reasons because there's no social safety net in China, because properties or real estate values have declined, right? And that's the main source of wealth of a Chinese consumer, which led the Chinese government to double down on exports, at least for the time being. And that means that China is a bit more vulnerable to an increasing tariffs from the U.S. than it was, let's say, before, right? During Trump 1.0, if you will. Now, the economy is a bit more vulnerable, and it has a number of liabilities, real estate, for example, that still need to be solved. China has responded with what some have called dumping. And in fact, it has strained its relationships across the board, not just with the United States, but with other countries as well.
So what you're looking at is an incredibly complicated landscape for China. I will say that it also cements in Chinese leadership the need to continue to invest in national security and also its borders, right? Quite frankly, the movement that we see in the South China Sea and regarding Taiwan is one in which China is basically trying to build a security perimeter around itself. That hasn't gone away. Quite the contrary, it's escalating right now. So this sort of protect yourself mentality is increasing and cementing in a very challenging macroeconomic landscape. So geopolitical risks are increasing as well as a result. Melissa, what do you think here? Did I leave anything out?
I think there's so much to talk about here, but one of the things that I think is so important to this discussion is that these are really existential questions to China. I just want to kind of reemphasize that. I think that was kind of laced through your response. These are so important to the Chinese economy that we are seeing a pretty significant response from the Chinese government and trying to find ways to walk this line of having a strong national response without necessarily disrupting the international system as it stands. I think we saw that in the retaliatory tariffs this morning that were relatively minor, all things considered.
I think we're at a point now where, however, as the kind of first question, returning back to that, we're really at a point where the Chinese government is really looking to continue to develop its self-sufficiency and kind of pushing towards protecting itself and losing that trust in the international system and losing those checks and balances that allow it to maintain that system. I think moving forward, as we see these conversations from the Trump administration and learn more about what their goals are with China, we are going to see them coming up against these really difficult constraints that the Chinese government faces in making concessions.
Yes. I should add, and I think you're absolutely right that the Chinese are ready to retaliate more.
Yeah.
There are some themes that we're seeing already. So especially for tech, critical minerals are a recurring theme, right? There was an opening salvo towards the end of last year, beginning of this year. We also see another is going for Trump's constituencies, especially agriculture, right? Farm machinery, we're seeing that already, right? Energy imports from the U.S. So this idea that we'll continue to retaliate, but we also want to negotiate. So the latest that we've heard is around trying to revive a phase one deal, right? Or something that Trump could call a victory, right? But the problem here is that this desire to contain China is bipartisan. The desire to have movement on PNTR, on Permanent Normal Trade Relations, right? And sort of setting a new baseline for tariffs when it comes to China outside of MFN is tangible, right?
It is something that is a priority for congressional Republicans. It's not necessarily even running around these bilateral talks between the two countries, right? It's structural, and it almost takes a life of its own. We should expect much more in China.
Yeah. Yeah. I mean, I think I heard one of you or both of you say it was maybe a measured. I don't think you used the word measured, but not as impactful of a retaliation. And I think maybe what's that?
It's an opening salvo.
Yeah. And maybe implicit in that is it was a 10% tariff, whereas it was 25% against Canada and Mexico. So would it be fair to say that the Chinese are expecting or at least preparing for sort of that escalator of, "Okay, the next 10%, here's what we're going to do when it gets to 30%," etc.? You see nodding heads there. Yeah.
Correct.
Okay. And have we seen anything yet in terms of what we expect out of them? More critical minerals restrictions or things like that?
Correct. I mean, export bans, right? Restricting imports from the U.S., right? Particularly for commodities that impact Trump constituencies, right? But it's a delicate balance here. Both have issued opening salvos, right? But the PNTR issue is a particularly sensitive one, right? If that moves, right? Melissa, chime in here if you want, but.
Yeah, absolutely.
That would be a seismic difference.
I absolutely agree, so I think what we're at right now, the way I kind of interpret the response from the Chinese government this morning is really almost de-escalatory. It's a response, and it's not insignificant. It's not unimportant, but it's not matching dollar for dollar. It's not trying to necessarily hit exactly the same way the United States tariffs hit. My sense is that there's still a belief in trying to reach a deal between China and the United States, and I think both sides kind of have that in their heads and are looking to find that path forward, and we see that through a lot of diplomatic channels as well, so there's still a lot of back channel and diplomatic activity that's pointing that way, and I think at the end of the day, the question is there are a couple of questions.
We know this is a structural difference between the United States and China. And so we have to ask the question, to what degree is that understood by the Trump leadership? And how much do they care about these various goals that they've laid out, such as IP, so Intellectual Property Protection, U.S. market access, changes in Chinese currency? Are these things that the Trump administration is really willing to escalate a trade war for? Or are we looking for a relatively simple settlement along the lines of the phase one deal? And I think those are the key questions for kind of the White House. But we also have to look to Congress where we're seeing a new push for PNTR repeal.
And we have to ask to what degree that's coordinated and to what degree pressure is being put onto the Trump administration to act there because we have a pretty broad Republican coalition that Trump is working with. And he's got his own constituencies that he's got to deal with and respond to. And he's really in a very difficult position because he's brought together groups with very different policy goals at the end of the day that he's trying to kind of mash together and move forward in a coordinated manner. So I think PNTR would absolutely change the direction and the scale of this possible trade dispute or existing trade dispute, but it would be. I question whether. I think we don't know if it's going to move forward.
We don't have a really strong sense of where these various interests are going to end up and if the Congress is going to be interested in pushing this forward.
Melissa, I want to follow up. You mentioned IP, intellectual property, and maybe let's talk technology a little more broadly. There was a lot of buzz last week with the DeepSeek AI models out of China that got released and created a lot of buzz in different circles, affected the stock market, things like that. Do you think that we're starting to see the limits of the ability for the U.S. to rein in China on these advanced technology areas given DeepSeek or you could pull from other examples? What do you think there?
You know, I think it's going to be a very nuanced answer, right? We have these leading edge, the very, very farthest edge of technological advancements that both the Biden and the Trump administrations have attempted to rein in, and I think that has been to a degree successful despite what we saw with DeepSeek. Ultimately, there are questions about how technology is ultimately getting to companies like DeepSeek. We're seeing an investigation that was opened yesterday on this very matter, investigating whether the GPUs needed to support that model went through Singapore, so we are seeing that there is real smuggling occurring. There are attempts to get around these various export controls, and that's going to be very difficult to fully plug. There's nothing in trade that you can fully stop and fully control. The world's just too big. It's too complex.
However, I do believe that there is a lot pointing towards the U.S. policy goal of slowing down China and its technological advancements is in many ways working, so many of the DeepSeek advancements, as I understand it, are really about efficiency. They're well understood, and they were things that were expected to happen at some point, and China still lacks access to some of the most advanced GPUs, so we are looking at a situation where the technology is going to change, but if the administrative goal is to essentially slow things down, to throw a wrench in things, then I think it is very much successful to date, and I think the question is, I don't think that it's a clear yes or no as to whether it's worthwhile, but I think that the administration has gotten much of what it wants out of it.
Okay. Fernanda, I'm going to just stay on China for one second here more, kind of looking at questions that are coming in. So there's a question about how long until you think so the 10% tariffs on China origin coming into the U.S. and now what China's done to retaliate. Any sense of, like you mentioned, a call with Xi Jinping and Trump, I think, later? Do you have any sense of what they're trying to get out of what Trump's trying to get out of this in terms of concessions and what would be enough to lead to a deal to say pause it for 30 days, like what happened with Mexico and Canada? Do we have any sense of concessions or deals or things that would sort of put a pause or potentially even eliminate these tariffs from either side?
I don't think the tariffs are going anywhere, if I'm honest. They might be suspended today because they're ostensibly connected to fentanyl, right, and I think that that's an interesting development because it introduces a new element in the relationship that wasn't there during the first Trump administration. But the desire to contain China, right, and the focus on the deficit on the one hand and on export controls of technology continues, right? It's not going to go anywhere. So there might be some temporary reprieve, but it operates, as I was saying, almost outside of the norm. So there's a lot of concerns about inflation, right? There was a lot of pushback on Trump when it comes to Mexico and Canada. How can you impose 25% on two allies of the U.S. and only 10% on China? So you see that China occupies a different space, right, altogether.
We should expect more on China. Even agreeing to revive the phase one deal or the phase two, right, is that going to make 301 go away? It's not. I also saw a couple of questions there on existing exemptions and non-tariff goods. I want to say a couple of things. I think the first is please reach out to your Expeditors customs contact for specific questions on how to classify whether a good that's already in a vessel, how to do this, right, especially also when it comes to Mexico and Canada. But our understanding is that these 10% tariffs go on top of what already exists, right? They don't fundamentally change the regime around 301 and the exceptions, right? Those still exist, but there's an additional 10%, right, without any meaningful exceptions, right?
I think it's important to keep in mind that everything that existed before is still there, perhaps with the exception of De minimis, right? The current tariffs don't allow for drawbacks, right? But there's a reconciliation here. So I urge you to reach out to Expeditors customs, right? Reach out to your account manager to work the specifics of your situation, right? Our team is incredibly knowledgeable and ready here. But from an Onyx perspective, what we're looking at is a continuing grind. We've been talking about this for a long time that the situation between China and the U.S. is not necessarily going to improve at all. You might have some pointed reprieves every now and then. But we do expect, because they go much broader than just fentanyl, right? They deal with very unspecified goals around trade deficits, containment, export controls, tech competition.
So these are not going away, right? And in many ways, they muddy the waters a little bit, and they create some challenges for even China to respond. But it's ready to retaliate. So we do see a further decoupling between the two economies in the offing.
Yeah. Thanks, Fernanda. That's a great point. Our expedited customs group is amazing in terms of the things that they monitor and are tapped into, and if you aren't already attending their webinars, you're going to get the kind of very specific procedural things about originating goods, transshipment, stacking of tariffs, all of that. The customs group is great for that. So definitely a plug there. All right. Let's take a quick pause here. I'd love to ask the audience a poll here, just get some feedback from you, so we're going to launch this first one here, and the idea with this poll is to kind of understand internally what group is responsible for navigating these trade actions. I imagine we have a lot of people in, say, trading compliance or supply chain. I would consider sort of transportation, logistics, supply chain for the sake of answering that.
I know that means different things for different companies. But I would love to kind of just hear how you all navigate this. Potentially, it's somebody in finance, legal, or other. So we'll give this a second here, let you guys get your answers in. And then I think while we're letting those come in, I think we'll shift to Europe now. We've talked a lot about China so far, a little bit about North America. Might come back to that. But let's go to Europe next. All right. Let's end this poll here. Give it about a minute. Okay. So you can see the results on screen, hopefully. So it looks like, yeah, trade compliance and customs is significant, the majority of this, or supply chain. So transportation, logistics, a bit of sourcing in there as well. Perhaps not a surprise.
If you have a compliance and customs department, this is on your shoulders to navigate internally. Okay. All right. Let's shift so looking at Europe, so I think it's another unique situation where if you kind of look back to COVID, coming out of COVID, economically, Europe hasn't really shown the growth that we're seeing in the U.S. Yet, similar to the U.S., we've seen from Europe and the E.U. in particular, a willingness to target Chinese origin goods, notably last year with EVs, electric vehicles, and we've seen other areas too, some dumping and other types of cases that have opened, so I guess given the E.U. or Europe has been traditionally an ally of the U.S., do we see, let's just say the E.U. acting as the E.U., aiming to align with the U.S. to diminish China's sort of trade imbalance and power?
Or is the U.S. potentially pushing Europe to align more with China? We haven't seen any trade actions yet against Europe, but does that make sense? Let me ask Melissa. Let me ask you that question. I'm sorry if I didn't word that well.
No, no, no. I think at the end of the day, the question is, where does the E.U. fall in this kind of U.S.-China competition, whether that's as kind of someone aligning with the United States or a set of countries going their own way? I think that there are a couple of important dynamics. I do believe that Europe is, for a variety of historical and geopolitical reasons, more likely to align with the United States if we're just kind of starting from a baseline, right? The European Union has many economic ties with the United States that it would very much like to continue. And as the United States puts more pressure on Europe to take action on trade with China, we do expect that Europe is willing to concede some there. But at the same time, Europe has very strong ties with China, especially Germany.
If we look to some of the leading countries in Europe, there's a very strong disagreement in terms of how to approach this relationship with China. And that is, at the end of the day, going to create some friction in this push from the United States to reduce investment from China into Europe or create strong trade barriers. But I do believe that we see we don't know exactly what the Trump administration is going to push Europe to do in this round of negotiations. But we do see so far really more of a focus on purchasing. So really focusing on Europe taking on LNG and purchasing more from the United States. There hasn't really been much messaging around China specifically.
I do expect that to be part of the discussion, even if it's not at the executive level, even if it's not something that Trump is pushing for. We absolutely expect to continue to see that push, as we did in the Biden administration, to try to get more action on Chinese exports and Chinese investment. So ultimately, I do believe that that will happen. But the degree to which Europe is willing to work with the United States very much hinges on how this trade disagreement, this upcoming trade disagreement, is going to play out as well. So we'll see. I do expect it to be a fairly aggressive push from the Trump administration, which may harm the chances of cooperation on China.
Yeah. Melissa, I agree. Well, I do think there are some themes, right, with Europe. The trading balance is number one.
Yes, absolutely.
The issue here, the interesting dynamic with Europe is that it's less about buying less from Europe, but more about having Europe buy more from the United States. The second undercurrent here is the question of defense spending, right? Trump has been frustrated for a long time and asking for European countries to shoulder the burden, right, of defense by increasing their spending to about 2% of GDP, which actually a lot of European countries have met already. To the point that Trump has started to talk about 5% of GDP, which is actually above what the U.S. spends, which is around 3.5%, right? There's this question around, are they going to include defense spending into this negotiation around trade deficits, right? But I think this question is a great hook for me to introduce a few other aspects. Melissa, please chime in as well.
I'm going to share my screen for a second here. Is it showing okay? Yeah. Okay. So what could come next, right? I guess is the question here, right? And I saw a couple of questions on Southeast Asia as well, and maybe we want to pivot to that later. But we have trading balances with the E.U. Trump, the candidate, mentioned Vietnam by name, right? So I saw a couple of questions in the Q&A around Southeast Asia, right? Like Thailand, right? Not top of mind, right, as much as Vietnam, right? Essential national security commodities, right? Chips and related equipment, pharma and metals, right? And then what has already happened, but 301, 232, 201, De minimis loopholes, right? Those are very top of mind for the administration. At the congressional level, USMCA review acceleration, right? The Trump Reciprocal Trade Act, which is essentially tit for tat, right?
Whatever you tariff our exports, we'll tariff imports from you, right? China, as we talked about, getting up to 60% PNTR, a broader reform of De minimis and the Generalized System of Preferences. So things for you to keep in mind in your mental map, right, as particularly vulnerable. And then there are some additional avenues. For those of you asking about Latin America, there's definitely a pivot, right? Secretary of State Rubio visited Panama recently, right? And brought in a lot of pressure in terms of a perceived influence of China over the Panama Canal, right? But there's this bigger overture towards Latin America. This goes in with regionalized trade. So if we look at what is the ultimate logical conclusion of the push that we're seeing right now is for much more regionalization and also reshoring, right?
And this idea, this return to this concept of Americas, right, as part of the U.S.'s defense perimeter, right? It's a little bit going back to a lot of what we saw in the 19th century, early 20th century, right? Tariffs, Protectionism, looking at the Americas, right? Pivot to Latin, bilateral sector-specific FTAs, action on currency, right? So currencies tend to fall, right, when there are trade measures, as we're seeing with the Canadian dollar. Now, there's a complex macroeconomic relationship between tariffs, right, and currency. But what the administration is particularly concerned about is countries that devalue their currency or settle or move away from the dollar as a reserve currency, right? What shape that will take, we don't know yet. I can tell you that a BRICS currency is not really going to happen.
But this idea that it would be incredibly hard for the U.S. to take action on this, but definitely as a bargaining chip in bilateral negotiations, right? This administration is looking at applying pressure bilaterally, right? With the E.U., as we were talking about, but with others as well, and external revenue service a bit more out there, a reform to WTO zeroing, right, on anti-dumping measures, government procurement, and much more, export controls as well. So just for your mental map here, Melissa, anything to add?
I think a couple of trends we've seen, particularly kind of in the tech space, would be also import controls on technologies that are viewed as a cybersecurity risk and just growing concern in general about hardware coming from China, particularly for networking and similar critical infrastructure. And then also look at outbound investment from the United States to China and just generally more concern from Congress about inbound investment, not just from China, but even Japan we saw with this recent Yukon deal. So we are most likely going to have some interesting attempts by some of these in some of these discussions to have more foreign entities investing into the United States. But it's unclear where Congress will fall on that particular issue. Trump himself has been clear that he's interested in that.
But we do expect to see those offers to come, and it will be interesting to see how Congress reacts to it.
Let me just add to that that when we're thinking about in your mental map, countries and sectors to keep in mind, right? Where do we see a lot of the deficit coming from, right? And where is it accelerating, right? Capital goods and equipment, pharma, food and beverage. These are some of the and consumer goods, right? Think about where you're at, right? What is your industry, right? And how much of the deficit can be traced back to your industry? And then in terms of countries, right? The EU as a whole, Mexico, Vietnam, Thailand, you can almost see the administration looking at where is the deficit coming from and who are the biggest culprits, if you will, here, right? There's some good news when it comes to especially India, right? India is not particularly responsible for. I saw a few questions on India there.
Not particularly responsible for a lot of the deficit, not a big player so far as an export base, right? Trump does have a great relationship with Modi, right? So we're looking at a strengthening partnership here rather than something that's at risk. I would say that Mexico and Canada are still sort of in, especially Mexico, in a tough situation, right? The border is one thing. So let's say, for example, there's an agreement and the suspension is extended, right? Which is one potential high likelihood scenario or a more measured application of the 25%, right? That still leaves open the question of USMCA renegotiation, particularly when it comes to rules of origin, but also the intent the administration is bent on importing less. And so there's a little bit of, can Mexico buy more from the U.S.? Can Canada buy more from the U.S., right?
Decreasing this deficit. There's a template that's emerging here clearly, right? Which is 25%, no drawbacks, right? Certain exceptions, right? Or lower tariffs for particularly sensitive goods like energy, right? And an exclusion of De minimis, right? So that is a template for everybody else that can come next, right? Including the EU and Vietnam. We don't know what shape that will take, but there's a precedent. There's an important precedent there in terms of this attachment to 25%, right? And this template that has been built or that is being created with Mexico and Canada. I'm going to stop right now. Long answer to your short question, Nick, but it did give us the opportunity to talk a little bit about other regions and sectors that we're seeing.
Thanks. That's great. I think the imports by countries is interesting. Excuse me. Do we think there's a strategy by the Trump administration, Fernanda, to create regional trading, say, like a North America type trading? I mean, obviously, there's USMCA, but to increase that to become more regionally self-sufficient, or is that just not a thing in terms of a strategy? Or I guess, what is Trump's strategy in terms of, obviously, besides reducing deficits, but is there any kind of regionalization that we're seeing? Is that on his radar or yeah?
Nothing material yet. This is much more in the realm of speculation, right? But this idea that you need to beat back Chinese influence in Latin America, right? Very top of mind here, right? And at the same time, you've got to offer something, right? And you've got to offer some concession there. Now, is there a possibility of, outside of the USMCA for the rest of Latin America, some sort of bilateral or sector-specific deal, maybe, right? We don't see anything material coming up because trade deficit is so top of mind right now, right? But it's much more on the sticks as opposed to the carrots, if you will, right? If you want to do business with us, you can't do business with the Chinese. But that's the example of Panama. So that's a lot more on the speculative side.
I would just add that the United States really also has to focus on some of its other key partners as well, right, so it's difficult for the United States to say, "Let's have a regional trading bloc and still remain allies with Australia and Japan and Europe," and to really say, "We want our manufacturing capacity to only flow through this regional bloc." On a geopolitical scale, there's a lot of challenges facing the United States in deciding who to work with and how, and so that's kind of in the way, and then in terms of the current capacity within the Americas, there's not necessarily capacity to take on everything that even through the continental scale, we don't necessarily have capacity to take on the manufacturing that the rest of the world can provide, so it's not as simple. It's not going to be as simple as geography.
I think there's also a question of who's doing what. We see Marco Rubio in Latin America really looking to expand ties there. At the same time, USAID is being cut off. There's threats against Panama Canal. How do we see the executive really reconciling all these goals, and can they actually accomplish a larger strategic vision within this region? I have my doubts, to be honest, just because of the lack of coordination.
Great.
Capital, right? I mean, it's not like there isn't out there, right? But the focus will be much more on immigration and a deficit, right? At least for the time.
Okay, so we are at time. I know we had a lot of questions. We couldn't answer everything. But thank you, everyone, for attending. Please reach out if you have any follow-ups. I'm just going to just promote again our webinar later this month. I think it'll be interesting to see with the surge in Chinese exports to many countries. This is going to be an ongoing thing to monitor, and I think it does weave into this protectionist conversation we've had today, so make sure to sign up for the relevant session for you there, so just a reminder on that, and I think we're done for today, so thank you, Fernanda. Thank you, Melissa, and thank you to our audience for all the great questions. Appreciate it. Have a great day.
Thank you.