Trade Policy Changes Not Reducing Trade Yet
The risk of new US trade policy having rapid impacts on US container trade volumes this year seems to have dissipated some in April. The Trump Administration has adjusted their initial trade restriction announcements made earlier this year with exceptions and delays. They are also engaging in talks with trade partner countries, including Canada, Mexico and China. The steel and aluminum tariffs were imposed in March but on a reduced set of countries, and with an exemption process still at work to exclude others. The threat to impose up to $150 billion in US import tariffs on Chinese exports still stands (as does China’s threatened retaliation in kind) but those tariffs are still pending.
Somewhat ironically, overall commodity trade volumes, including US imports, have increased, likely as a response to the threats to trade. Market psychology regarding potential future additional tariffs has affected trade behavior quickly, not surprisingly. Following the US trade policy announcements this year it appears some companies have accelerated shipments. This even led to an increase in China’s trade surplus with the US in April, the opposite of what the Trump Administration has said is a reason to impose tariffs in the first place. Chinese – US trade increased double digits from March to April in both directions, with shippers and consumers in both countries fearing future higher trade prices they may have to pay if the US tariffs and Chinese retaliation advance.
Even where tariffs have been imposed, on aluminum and steel, China’s exports of those commodities to the world increased in April. World steel and aluminum prices rose with the 25 percent tariff on US steel imports and 10 percent tariff on aluminum going into effect March 23rd. Despite the country exemptions the Trump Administration granted, world (and US) prices are higher which encouraged Chinese producers to export more, which they were able to do, selling into non-US markets.
A risk remains that more US tariffs and retaliation may go into force which would work to reduce trade, but if negotiations lead to compromise on both sides, container trade volume for 2019 may not be much affected.
Paul Bingham is a Director at Hackett Associates. He can be reached at paul@hackettassociates.com