A showdown between US President Donald Trump and Chinese President Xi Jinping had been hotly anticipated since the day the President was elected. Trump’s anti-China rhetoric has been fiery at times, with some commentators even daring to contemplate a trade war, an idea that sends shivers down the spines of those operating on the US-China trade lane.
Last Thursday, they finally met, but trade talks were overshadowed by the US military action in Syria. That’s not to say that trade wasn’t discussed though. So what did the pair talk about?
In short, not much. Or at least, not much was agreed upon. The tone was friendly and there were warm and encouraging words from the Chinese as the two administrations set a 100-day plan to reduce the US trade deficit. One agreement struck was to increase US beef exports and another was to increase financial sector investments.
On the campaign trail, Donald Trump had furiously argued for import tariffs on Chinese goods but there has been no action thus far. Chinese exports made up approximately 20% of US imports in 2016 and so any serious price increase would surely hurt the US. It would decrease demand for Chinese goods though and carriers on the Eastbound route would feel it as they struggled to fill their ships.
The rhetoric, although somewhat farfetched, still cannot be taken lightly though when they are regarding one of the world largest trade lanes. According to the US census bureau, in 2016, the US exported $115bn of goods to China, with $462bn coming in the opposite direction. It is this $347bn trade deficit that President Trump has been so vocal about.
Chinese exports have been under threat in recent years. The economic slowdown has caused difficulties and growth in manufacturing wages is a threat to China’s attractiveness. According to the Financial Times, between 2005 and 2016, manufacturing wages in China trebled and have overtaken those in Mexico and Brazil. As wages grow, multinationals have been looking to peripheral Asian markets such as Indonesia, Vietnam, the Philippines and Thailand.
Despite this, multinationals still recognise the experience and manufacturing expertise that China has gained over the years and China’s logistics growth matches this sentiment. A recent report by Ti estimated that contract logistics market growth in China was in the double digits in 2016. Furthermore, indications are that companies are adding production facilities in the peripheral markets, rather than replacing the existing Chinese ones. The Chinese will of course continue to want to export to the US, so any threats to this should be feared by carriers on this route.
Trump has said he wants to, in his words, “bring jobs back from China”, increasing US manufacturing and reducing the trade deficit. Realistically, these jobs won’t ‘come back’, for the reasons highlighted above, but there are some signs of increases in activity in the Westbound direction which may reduce the deficit. The US exported nearly 26% more containerised tonnage to China in 2016 than it did in 2015.
The start of Trump’s presidency and the talks last week were largely positive for LSPs in so much as no news is good news.
Whilst Trump threatened to introduce tariffs and label China as a currency manipulator, no action of any sort has yet come to fruition. That being said, there are no guarantees that this warm and cosy start will last. The relationship between the heads of these two global superpowers should be watched with great interest.
Source: Transport Intelligence, April 11, 2017
Author: Andy Ralls
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)