How likely is a China-US trade war and what would the consequences be for logistics?


The latest eruption from Mr Trump is not the first time that the US has threatened to start a trade war.

Through the 1990s and into the 2000s, the administrations of George Bush Sr and George Bush Jr imposed tariffs on various products, with steel attracting particular attention. Donald Trump may be eccentric and loud, but he is really only articulating an American policy position that has existed since the early 1970s.

Such a position is not surprising. The flow of trade around the world is highly unbalanced with major economies such as China and Germany running very large trade surpluses. Essentially the global trading system has been built on the assumption of continuing consumption by the US which other economies rely on to drive large parts of their productive sectors. It is hardly shocking that the Americans get tired of this occasionally.

At present, both the US and China are threatening to impose tariffs on certain high-profile products. On Tuesday April 4, the US released a list proposing 25% tariffs on 1,330 different types of Chinese products worth $50bn, covering everything from snow blowers to pharmaceuticals. Unsurprisingly China has ‘retaliated’ with a list of its own, threatening levies on $50bn of American goods, ranging from pork to aeroplanes. There are strong signs that both these positions are negotiating postures. For example, the tariffs are not to take effect for several weeks which gives time for talks. A collapse, or even an impairment of global trade is very far from certain.

However, should the bargaining fail the implications of this for the global logistics sector would be profound if difficult to calibrate. The most immediate effects would be on shipping lines, air cargo handlers, ports and freight forwarders as volumes would fall, possibly not by particularly high percentages but enough to undermine profits and disrupt the balance of supply and demand. In the longer term, other areas such as warehousing and contract logistics would suffer badly.

What recent events ought to emphasise to all those involved in the logistics sector is that the present structure of world trade is probably not sustainable. A number of major economies have oddly lopsided structures that have built up over decades yet could collapse with very significant implications for them and their customers in other economies.

Although rarely articulated, this represents a major risk to the business models of many logistics service providers who depend on the present pattern of world trade. If such businesses are not able to adapt to both uncertainty and new trade patterns, they will fail.

Source: Transport Intelligence, April 5, 2018

Author: Thomas Cullen

GSCi

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