Sea freight to be hammered by US tariffs on almost $200bn of goods

Up to 60% of China-US containerised sea freight tonnage faces higher tariffs from September 24, as the US imposes 10% tariffs on almost $200bn of goods.

In a press release, the Office of the United States Trade Representative (USTR) declared: “In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent.  Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.” 

The move builds on the $50bn of Chinese goods already facing higher tariffs, implemented earlier this year.

Ti’s initial analysis suggests that sea freight will be taking most of the tariff strain. Goods facing higher import taxes in the latest tranche amount to over one third of all US imports from China in dollar terms (the US imported around $500bn of goods from China in 2017). The tariffs will also apply to just over one third of air freight tonnage. However, sea freight appears set to be slammed, with up to 60% of containerised tonnage facing tariffs.

About half of the sea freight tonnage facing tariffs belongs to just five product groups: furniture & bedding, articles of iron & steel, machinery, vehicle parts and electronic goods. Furniture & bedding alone accounts for almost 20% of the sea freight tonnage being targeted.

China has promised to retaliate in the event of any escalation by the US, but with its imports from the US at $155bn in 2017, it is unable to match dollar-for-dollar.

Instead, it may try to be more forensic in its retaliation, targeting specific US supply chains. For example, as stated in this New York Times article, Lou Jiwei, China’s recently retired finance minister and now a senior Communist party advisor, said that China could halt exports of components crucial to American supply chains. He asserted that it would “take years” for American companies to find alternatives to China, remarking, “To take a step back, the United States can establish an alternative supply chain in a third country, but it takes time — what about the pain of three to five years?”

President Trump has stated that he is prepared to “immediately” place tariffs on another $267bn worth of imports “if China takes retaliatory action against our farmers or other industries.”

Another crucial feature of the latest swathe of tariffs is that they directly hit consumer goods significantly. As elaborated on by the Peterson Institute, in the initial round of $50bn of imports from China subject to tariffs, consumer goods accounted for just 1% of the products. In this phase of almost $200bn, consumer goods account for around 20%. As stated by the Peterson Institute, “The explanation for this shift lies in the fact that there are fewer and fewer such supply chain elements left to target. Consumer products are much of the imports from China that were left.”

If there is a silver lining to be found for consumers, it is that tariffs will only be increased from 10% to 25% on January 1, 2019, making their Christmas shopping that bit more affordable. Nevertheless, there is no sugar coating that the latest episode in the ongoing trade war is a bitter pill to swallow for the logistics sector, especially sea freight forwarders and carriers.

Source: Transport Intelligence, September 18, 2018

Author: David Buckby


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