Tuesday, August 28, 2018

Import Tariffs Should Worry All Freight and Logistics Players as Tit for Tat Moves Continue

So How is the Trade War Going for You?
Shipping News Feature
US – CHINA – WORLDWIDE – So by now just about everybody who works in freight and logistics knows there is a 'situation' with regard to international trade tariffs and the duty rates being imposed by one country on another's favoured exports. In April America imposed tariffs on steel and aluminium imports from China, as well as Canada and countries in the European Union. More rises followed with 25% hikes on more Chinese goods, net cost estimated at around $35 billion annually coming into force in July, as President Trump pursued his aggressive 'America First' agenda, simultaneously accusing the Chinese of 'dumping' trade goods on the US.

China naturally reciprocated, imposing their own restrictions whilst the US then switched to accusations that intellectual property was being routinely ‘hijacked by’ Chinese companies. The US says it has the right to do this under the 1974 Trade Act (Section 301) which offers the administration authority to do so if under threat. In turn the Chinese felt hard done by saying this was simply US protectionism, something the country has often been accused of, for example use of the Jones Act to eliminate all foreign competition, irrespective of the costs.

Lest anyone still think we are not in a trade war it may be time to reconsider. The Chinese have now slapped a 25% levy on the ‘marine fuel of the future’ liquefied natural gas (LNG) a market for which the country has high hopes as a source of export with four major export terminals currently under construction in the southern states of Louisiana, Georgia and Texas. The loss of all US LNG would be a flea bite to the Chinese and there will be willing suppliers elsewhere, according to Portland Fuel only 6% of LNG in China emanates from the US.

The story for the Americans is somewhat different with the Chinese being the third biggest market for US LNG at circa 8 million cubic metres per day behind Mexico and South Korea which account for 21 million cubic metres a day between them. Countries will be queuing up to supply the Chinese shortfall whilst the US will see a sizeable dent in Trump’s agenda to dominate the world energy market.

Portland Fuel issued its August 2018 oil report this week and it remains confident that this latest salvo in the trade war will simply cause a readjustment of the market, someone else sells LNG to China and the US sells it to that country’s former customer. The report also makes the point that politically it would suit both Trump, and the EU, to see alternative gas supplies to those which come via a pipeline controlled by Vladimir Putin’s administration.

In terms of the overall situation however this latest move by the Chinese is symptomatic of a much bigger problem. China is flexing its economic muscle as the US fears its position as the dominant economy is increasingly threatened. We may be witnessing the initial moves in what could become an escalation that shakes the very foundations of international trade.

Already we are hearing that the difficult trading atmosphere is impacting areas of the global supply chain. Earlier this month IATA’s Director General and CEO, Alexandre de Juniac warned that, whilst air cargo was somewhat insulated from the worst effects, trade wars never produce winners and the deterioration of global trade was ‘a matter of great concern’ to him.

Let us hope that we are not seeing the ingredients for a ‘perfect storm’, a blunt, determined and unpredictable US president, keen to press through swingeing sanctions against any perceived foes as well as the aforementioned tariff rises. The largest nation in the world intent on a long term goal of economic dominance, a Russian administration hunting for the glory days of old, and a host of vested interests around the globe seeking any opportunities to beat the system. Whatever else, it’s not going to be dull.