US-China deal may not lead to too much growth in logistics markets

The signing of the phase-one deal has not exactly been the panacea to trade issues with China Trump had hoped for.

The US and China appear to be inching towards some sort of agreement over trade. On Friday Donald Trump and the Chinese Vice-President Liu He initialled a “substantial phase one deal” that is scheduled to be formally signed by Xi Jinping and Donald Trump at a conference in Chile next month.

Unfortunately, the depth of any such agreement is questionable. Although China has promised to buy more US agricultural products – which is likely to have an impact on shipping volumes across the Pacific – and the Americans have agreed not to impose any new tariffs, most of the key issues separating the two remain to be resolved. Indeed, Donald Trump has indicated that he wants to continue talks even before signing the agreement he has already initialled.

The impact of this deal on the logistics market looks equivocal. On the one hand some of the heat may have been taken out of the trade war between China and the US, not least with an agreement to stop imposing more tariffs. However, many tariffs already imposed remain. This and the lingering underlying sense of tension will mean that the uncertainty over trading patterns will continue.

Such uncertainty is likely to ensure that the logistics markets continue to suffer turbulence, with nervous shippers looking to build up short-term inventory in order to avoid tariffs they fear may be imposed in the future. It also means that the frantic restructuring of supply chains is also unlikely to stop, especially in the electronics sector as well as for other types of consumer products.  

In the short term it is quite possible that the deal making between China and the US may ease the pessimism over the state of the world’s economy. However, there are other contributing reasons for pessimism, notably the longer term fall in the GDP growth rate in China or the restructuring of the car industry. If the trade war eases it will be interesting to see how much these are responsible for softer conditions in logistics markets.

Overall, the underlying picture for international logistics markets still looks less than optimistic. With many of the issues depressing demand having longer term causes, a short term deal and a meeting between Donald Trump and Xi Jinping is unlikely to make them go away.

Source: Transport Intelligence, October 15, 2019

Author: Thomas Cullen