Global trade negotiations intensively promote multi country acceleration of industrial layout reconstruction
From the joint review of the North American Free Trade Agreement, to the G20 trade ministers' meeting, and to the further evaluation of the EU and the Southern Common Market (Mercosur) free trade agreement, global trade negotiations and consultations have been intensively underway recently. Due to the long-term direct impact of trade policies on industries such as automobiles, metals, and agriculture, the topics of reshaping the industrial chain and strengthening supply chain stability discussed by all parties in this round have attracted attention.
The North American Free Trade Agreement still faces uncertainty
In mid month, US President Trump had a phone call with Mexican President Simbaum, as the two countries were close to reaching an agreement on the differences over the US Mexico Canada agreement. The fourth round of consultations has been postponed to September 28-29 in Washington.
The third round of negotiations in July covered topics such as automobiles, steel and aluminum, agriculture, and labor, and both sides agreed to expand North American manufacturing and strengthen regional supply chains. Reuters reported that the two countries hope to finalize the framework arrangements before the November midterm elections in the United States.
The rules of origin for automobiles are the biggest divergence. The US requires vehicles to contain 50% American ingredients in order to enjoy preferential access. The current agreement requires 75% North American content, of which 40% is produced by workers with an hourly wage of no less than $16, and no quota is set for a single country. The Mexican side firmly resists and demands that the tariffs imposed under Article 232 be adjusted first. Currently, the United States imposes a 25% tariff on Mexican automobiles and a 50% tariff on steel and aluminum products; However, Japanese, Korean, and EU car companies only face a 15% tariff and no content requirements for their exports to the United States, while Mexican car companies have a significant cost disadvantage.
The uncertainty of the trade situation has been transmitted to the industry, for example, in July, Mexico exported 261500 light vehicles, a year-on-year decrease of 9.7%; Toyota has announced the relocation of one of its pickup truck models from Tijuana, Mexico to Texas, USA. The Mexican Automobile Industry Association stated that the automotive industry was originally the "clearest example" of trade integration between the United States, Mexico, and Canada, but was dragged down by the "232 clause" for nearly a year and a half and urgently needed certainty. The agreement supports nearly $1.6 trillion in regional trade, and US Trade Representative Greer hopes to reach a temporary agreement within this year, leaving thorny issues for 2027. Brady, former chairman of the House Ways and Means Committee, said, "Every round of negotiations adds value, but for every day the negotiations drag on, the industry becomes even more watchful
However, there is still significant uncertainty regarding the North American Free Trade Agreement, as trade negotiations between Canada and the United States broke down in late August and the US imposed a 50% tariff on some Canadian goods. Canada seeks to establish closer economic and security ties with Europe. The United States and Europe are also constantly in conflict over a series of issues such as tariffs, military spending, and sovereignty, deepening the transatlantic rift.
Multilateral trade negotiations also affect the nerves of the global industry. The day after the end of the US Mexico negotiations, US Trade Representative Greer will host the G20 trade ministers' meeting in Milwaukee from September 30th to October 1st.
The intensive negotiation schedule is not only a manifestation of the restructuring of the global economic and trade pattern, but also a reflection of concerns about uncertainty and potential downside risks among all parties.
The Global Trade Update released by the United Nations Conference on Trade and Development shows that in the first half of this year, the global trade volume of goods was about 13.7 trillion US dollars, a year-on-year increase of 12.5%, and is expected to reach a new high for the whole year; However, the contribution of price factors is significant: the trade price index increased by 3.6% month on month in the first quarter and is expected to rise to about 5% in the second quarter. The obstruction of passage through the Strait of Hormuz has pushed up energy and transportation costs, meaning that actual trade volume has only grown moderately. However, the institution also pointed out that global trade growth faces a high risk of imbalance: after excluding East Asia, the overall trade of developing economies is shrinking.
The "Goods Trade Barometer" released by the World Trade Organization in September showed that the prosperity index rose to 102.0, with electronic components, export orders, and automotive products showing improvement, and AI demand becoming the strongest engine; However, the container shipping index fell to 99.6, the only sub item below trend. The disturbance in the Strait of Hormuz has pushed up shipping costs, and supply side concerns have become apparent. The World Trade Organization warns that geopolitical and policy uncertainties are looming over the economic outlook.
EU adjusts trade strategy
Since the beginning of this year, the EU has also been making efforts to restructure its economic and trade landscape. Against the backdrop of the EU's goods trade shifting from a surplus to a deficit in the first quarter, the urgency of exploring new markets is on the rise. The focus of EU trade policy is accelerating towards regional and bilateral cooperation - free trade agreements with Mexico, Chile, Indonesia, and Mercosur have been temporarily applied, while negotiations and approvals with Malaysia, the United Arab Emirates, and others continue to advance; Previously, the EU also initiated dialogue and cooperation with members of the Comprehensive and Progressive Agreement for Trans Pacific Partnership.
This year, the European Union and the Southern Common Market signed the "EU Southern Common Market Partnership Agreement" and the "Interim Trade Agreement", the latter of which has been temporarily applied since May 1st. The agreement covers a market with more than 700 million people and will eliminate about 91% of bilateral trade tariffs. President of the European Commission von der Leyen called it a "win-win agreement".
The tariff dividend is immediate: the EU electric vehicle import tariff to the Southern Common Market has been reduced from 35% to 25%, the fuel vehicle tariff has been reduced to 17.5%, and the tariff on parts has been gradually reduced, opening up incremental space for the European automotive industry in the South American market. Ye Bin, Director of the EU Law Research Office at the Institute of European Studies, Chinese Academy of Social Sciences, pointed out that stable access to key mineral resources has become a core demand of the EU, and this agreement will profoundly affect the supply chain pattern of key raw materials.
However, the full implementation of the agreement still faces institutional barriers: due to the European Commission splitting the agreement into two documents to promote the implementation of the trade section first, the European Parliament passed a resolution this year with a narrow majority of 334 in favor and 324 against, requesting the European Court of Justice to issue an advisory opinion on its compatibility with the EU's basic treaties. Such opinions usually take one to two years to be issued. Member countries such as France and Poland hold a reserved attitude due to agricultural interests, and French President Macron has warned that final approval will be quite difficult. The multiple checks and balances between member states, the European Parliament, and the European Court of Justice have become the biggest variable in whether the EU can fulfill its commitment to openness.
Latin America expands diversified economic and trade partnerships
Amidst the global economic and trade turbulence, Latin America is undergoing supply chain restructuring and layout in order to achieve stable trade development.
The uncertainty of the North American Free Trade Agreement has prompted Mexico to promote export diversification, while the European Union has exchanged tariff concessions for access to its key raw materials and agricultural products, and the trans Pacific economic and trade links continue to deepen.
Former Peruvian Foreign Minister Cesar Landa believes that Latin American countries can strengthen cooperation in poverty reduction, environment, peace and security through bilateral mechanisms, free trade agreements, multilateral mechanisms such as the United Nations, and pay attention to the impact of cooperation on people's well-being and long-term development.
Brazil, another major economy in Latin America, continues to increase cooperation with China. Data shows that China has maintained its position as Brazil's largest trading partner for 17 consecutive years, with a trade volume of 171 billion US dollars by 2025, a year-on-year increase of 8.2%. In the same year, Brazil attracted Chinese investment of 6.1 billion US dollars, a year-on-year increase of 45%, ranking as the top destination for Chinese overseas investment. The automotive industry ranked third with a proportion of 15.8% in the investment field. BYD's factory in Bahia has been put into operation, and Geely has invested in Renault's Brazil business; The opening of the Qiankai Port in Peru has opened up a new channel for the export of South American goods to Asia.
It is worth noting that the field of economic and trade cooperation is extending from commodities to the digital economy and advanced manufacturing. Castro Neves, former Brazilian Ambassador to China and Chairman of the Brazil China Business Council, stated that the digital economy, artificial intelligence, renewable energy, and advanced manufacturing are becoming new frontiers of cooperation between Brazil and China, and he looks forward to deepening the partnership between the two countries' enterprises. Industry insiders point out that the current penetration rate of e-commerce in Brazil is only about 14%, and the local cross-border e-commerce industry has broad growth potential.