Trade War Bluster Buster: The Flow of Trade
The trade war between the United States and many of its trading partners has created a boomerang effect that will be impacting the shipping industry for years to come. The flow of trade is not only a good barometer of a country’s health, it is also a real-time indicator on the status of trade negotiations, as well as highlighting where the trade is being diverted.
The boomerang effect of U.S. tariffs and retaliatory tariffs can be easily tracked in the commodities of steel and aluminum. The U.S. agriculture sector, which is a large consumer of steel and aluminum made products, got smacked hard when the Chinese retaliated to the 232 on steel and aluminum, by pulling back on ag spending. Without the extra discretionary spending money, the farmer was not reinvesting in new machinery. In John Deere’s third quarter conference call CFO Ryan Campbell explained the company would be holding back expansion plans because the U.S.-China trade war, the harsh weather, and the loss of livestock to disease had all negatively impacted global agriculture. This is a classic example of how while the tariffs did the job in stopping the dumping of steel and aluminum imports, it could not protect the industry from a slowdown.
The play by play trade tweets by President Donald Trump and his announcements of imposing additional tariffs, and the subsequent postponement of those tariffs, have created tremendous uncertainty within shipping. Companies like Casabella, a part of Bradshaw Home, had products on the water that were subjected to tariffs once they reached shore. The problem was the product’s prices were already pre-negotiated. The trade war has put companies like Casabella, in the middle of a squeeze play with the retailers. If retailers do not renegotiate, companies will be forced to take the tariff brunt which could have a crippling impact.
The flow of trade has also proven how much America is losing in this trade war with China. Economic data have been released showing a slowdown, but the flow of trade has been sounding the alarm for months. Trade from the Eastbound Transpacific Lane has shifted in both directions. U.S. exports from the Port of Los Angeles, have plummeted in the last eleven months. China has diverted some of its product away from the United States to Europe. The Far East to Europe trade lane has seen a 4.6 percent increase in trade volumes year over year.
The bluster of rhetoric on the “progress” being made in the first phase of the U.S.-China trade deal is not impervious to the truth of the flow of trade. Treasury Secretary Steven Mnuchin explained China agreed to the purchase of $40 to $50 billion in U.S. ag products over two years. President Trump declared in his victory lap the U.S. farmer would need buy plow more land and buy more John Deere’s to keep up with the demand. Not so fast. When you look at the two years prior to the trade war, China made $25,459,000 in agriculture buys in 2016; and in 2017, purchased $24,348,000 in ag products. Those two years combined totaled $49.8 billion. So, if China purchases on the upper end of the range, the U.S. farmer might break even. If it’s below, the ag business community will be at a loss.
“How gullible and desperate does the President think we farmers are?” said farmer Christopher Gibbs, “We know how much China was buying before this mess. This deal is status quo! Not to mention, we’ve heard about these grand gesture purchases before. I’ll be keeping my champagne on ice thank you.”
Containers don’t lie.
Source: Lori Ann LaRocco is the author of “Trade War Containers Don’t Lie: Navigating the Bluster” (Marine Money Nov. 13, 2019) as well as the “Dynasties of the Sea” book series, “Opportunity Knocking”, “Thriving in the New Economy” and is the senior editor of guests at CNBC