Uncertainty bites despite apparent thaw in Sino-US relations


Reports of easing tensions between the US and China following the G20 summit have been welcomed, but the costs have already been significant.  

President Trump has agreed to postpone an increase in tariffs on $200bn of Chinese goods from 10% to 25%, initially planned for January 1, until March. In a statement, the White House Office said “President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavour to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.”

There was plenty of confusion following their meeting. Stock markets jumped on the possibility of the pair striking agreements on trade, but were soon dashed as this showed not to be the reality. Trump for instance tweeted that China had agreed to end 40% duties on imports of US-made cars. No such concrete agreement took place. However, a number of automotive manufacturers tentatively welcomed the discussions following meetings with the President.

The news is welcome to Chinese exporters to the US. The data to September 2018 shows this part of the trade lane thus far hasn’t been hit that dramatically overall by the imposition of tariffs. Data from the US Census Bureau shows air and sea freight volumes have grown in single digit percentage terms year-over-year for the first nine months of 2018. The same is true in value terms. It is in the other direction where trade has slowed, specifically in sea freight. In the first nine months of 2018 containerised freight volumes fell 14.2% year-over-year. However, we are yet to see the full impact of the vastly more substantial September 24 tariffs in either direction in the data.

The uncertainty around the issue is continuing to have a drastic impact on trans-Pacific supply chains. Many shippers had already booked space with carriers in a rush to get goods to the US before January 1. Likewise, carriers have increased capacity on certain routes, and will now likely see demand growth easing.  Those shippers that have already booked space must now take on the additional burdens of inventory storage costs within the US. With an extension of the deadline until March 1, shippers will be faced with tricky questions. Do they repeat the stockpiling exercise once again ahead of this date? Can they afford to hold excess inventories for a further few months? Is it worth seeking out non-Chinese suppliers if the imposition of increased tariffs may not come to pass anyway?

Trucking appears to have been squeezed as well. It is no secret that capacity in the US is tight. On the demand side, the US economy is performing extremely well. On the supply side, driver shortages are becoming more apparent. This has made it much more difficult for shippers to secure space. This will really start to bite if the majority of shippers seek to avoid additional tariffs by moving goods earlier.

These are the costs of trade wars that don’t hit the headlines. They are painful nonetheless.

Source: Transport Intelligence, December 6, 2018

Author: Andy Ralls