Victims of the Trade War
The first victims of the Administration’s trade war will be ocean carriers, ports, terminals, truckers, and railroads. There are seldom any winners in a trade war – although both sides will claim victory in the end – but there will surely be a loss of trade and damage to the shipping industry.
The announced U.S. tariffs on steel and aluminum will hurt break bulk carriers and ports as well as the container trades. China’s announcement of retaliatory tariffs on fruit, dried fruit and nuts, pork, wines, steel pipe, and scrap aluminum will be most strongly felt at West Coast container ports.
The proposed U.S. tariffs on Chinese exports were released April 3. The 58-page list includes a wide range of medicines (e.g. epinephrine) and industrial chemicals; specialty metals and steel; many kinds of industrial machine tools and parts; vaccines, defibrillators, and hearing aids; dryers and dishwashers; construction and farm equipment; windfarm generator sets; and even blank CDs. It is mostly containerized cargo. Remember, though, that this is a proposed list, subject to hearings and negotiations.
That list will result in further trade losses, further retaliation, and still more trade losses. Tariffs lead to higher prices for industrial buyers and consumers. U.S farmers will be hit doubly, with Chinese tariffs on fruit, nuts, and pork, and U.S tariffs on farm machinery. Farmers are squarely in the crosshairs for worse, with Chinese retaliation expected against soybeans and other major U.S. exports.
Trade wars and uncertainty also discourage investment in either country. The unpredictability of the Trump Administration makes any new investment especially risky. Ironically, container cranes, which already cost upwards of $10 million each, appear to be on the Trump administration list for 25 percent tariffs. With a bleak outlook for trade, ports may be in a mood to cancel orders.
The dollar balance of trade with China is roughly 4:1, with the U.S. importing 4 dollars with of goods from China for every dollar of goods exported to China. The container balance, however, is much different because the U.S. tends to ship bulkier, lower value goods such as agricultural products to China while receiving higher value, less-bulky goods such as consumer electronics. Much analysis will be needed to assess the impact on container trade volume, but we can be sure it will not be good.
Dan Smith is a Principal with The Tioga Group: www.tiogagroup.com