Impact on Container Trade of New U.S. Tariffs on Imported Metals
Do the new US steel and aluminum import tariffs threaten the baseline forecasts of US import container volumes this year? That question is on the minds of shippers rightly fearing the effects of the new tariffs. The answer can’t be known given the path of retaliation and subsequent US response back-and-forth is not clear. While there are characteristics of the way these new tariffs are being justified and applied that are very unusual, the likely responses by trade partners can be anticipated to some degree.
Much of the steel and aluminum targeted for tariffs is imported as breakbulk cargo rather than as containerized cargo (due to the size and weight characteristics). The uncertainty for the import container volumes therefore is primarily due to two factors:
1)if additional product categories are newly tariffed as a further response to retaliation against the US; or
2)if the resulting price responses lead to shifts in manufactured product trade competitiveness that could increase US import TEU volumes of now relatively-cheaper finished machinery and equipment products.
We can learn from past trade disputes between the US and its trade partners, even if those disputes aren’t similar in process or timing to these new tariffs. Past retaliation has typically seen a measured response by other countries. Instead of responding dollar-for-dollar or commodity-by-commodity, more effective has been the imposition of narrowly-targeted retaliatory tariffs on US exports of commodities important to the voters in states of influential US Senators and Congressional Representatives. The likely EU response already cited is in line with this approach: retaliatory tariffs against Kentucky bourbon from US Senate Majority Leader McConnell’s home state, and Harley Davidson motorcycles from US Speaker of the House Ryan’s home state. The volume of export TEUs affected won’t be large in that case (as long as the US doesn’t further respond with additional tariffs).
As US steel and aluminum prices rise with the tariffs, the world prices may drop due to reduced export sales made to the US. The increased metal prices in the US will make users in US manufacturing less price competitive for exports of machinery and equipment. It is possible that the US steel and aluminum producers become less competitive inside the US, resulting in an increase in imports of products containing steel and aluminum. Under this scenario it is entirely possible that the net result will be an increase in US import TEU volumes, as the reduced US import volumes are more in breakbulk cargo while the container volumes of finished goods such as machinery, equipment and appliances with high metal content could increase.
The net impact on TEU volumes likely depends on how extensive the potential back-and-forth on tariffs becomes if a trade war breaks out. In an expanded trade war, the aggregate demand for goods overall could fall and the US, and perhaps the world, could fall into recession. In that worst-case scenario, the echo of the 20,000 commodities covered under the 1930 Smoot-Hawley Tariffs during the Great Depression could haunt the US economy. Yet such an extreme scenario seems unlikely as the political cost to the politicians in an election year seems likely to prevent a trade war being allowed to develop.
Paul Bingham is a Director at Hackett Associates. He can be reached at paul@hackettassociates.com