US firms urge Washington not to hit Vietnam trade with 'China-style' tariffs
US firms have urged Washington not to slap China-style trade tariffs on Vietnam. The call comes ...
For almost two years the US has been embroiled in a rhetoric-filled trade war with China, but this week, the two countries signed the Phase One deal.
The agreement was hailed as “tremendous” by President Trump.
However. based on the flow of trade, the US will face an uphill battle in taking back the market share it lost to its competitors because of the tariffs.
The pipes of trade have been diverted away from the US and, no matter what is pledged in Phase One, trade expansions by China during this time will have an impact on US trade.
With 90% of the world’s economy moved by maritime transport, the ocean highways are the best way for anyone to monitor the flow of trade and gauge the status of trade talks. Remember two phrases your parents told you: “Talk is cheap” and “Actions speak louder than words”? Well, when it comes to the world of shipping, action is being taken. Containers and tankers don’t lie.
The flow of trade is the ultimate fact checker because it is agnostic and does not play favourites. It’s all about supply and demand. Trade agreements are the pipe adaptors, which help expand trade. Tariffs, on the other hand, can act as either a stopper, blocking the flow of trade into a specific country, or an elbow pipe, diverting the flow from one country to another.
The true story behind the trade war begins and ends at the ports. US exports are a shining example of trade talk rhetoric and even the grandeur of a Phase One deal has not produced any surge in US exports to China.
“We have yet to see any details about the Phase 1 deal, but we do know that cargo volumes will not return in the short run,” said Gene Seroka, executive director of the port of Los Angeles.
“We’ve experienced 14 consecutive months of declining exports and China has developed new trading partners. With imports, the migration of manufacturing to South-east Asia is real and we are seeing the effects to global trade flows. “
The reason for this is China’s ability to broaden its trade base. China was successful in diversifying its soybean sources with Brazil, Argentina, Russia and Canada. For the agriculture industry, ploughing land is considered building infrastructure.
“The thing I am most concerned about is that our number-one competitor, Brazil, is pursuing greater volume of production and clearing ground to grow more bushels, thousands of acres,” said Derek Haigwood, chairman of the US Soybean Export Council and a soybean farmer from Arkansas. “Acreage stays forever, it never goes back. Even if the trade war is solved tomorrow, those acres are there forever.”
Since the start of the trade war, the agriculture industry has seen a $15.9bn loss of purchases from China, compared with 2017. That trade is lost and can never be recovered. President Trump’s promise of the $40bn-$50bn in agriculture buys by the Chinese in Phase 1 is a great example of bluster.
“In the two years before the trade war, the agriculture business community made $49.8bn. China would have to buy $50bn over the next two years to make it a ‘win’.”
Agriculture is not the only industry impacted. The pattern in the flow of trade has shown China’s intent to wean itself off US energy as well. Unlike soybeans and other products that are grown in limited areas, the supply of energy is far more abundant. This gives China the flexibility in cutting out the US. Chinese premier Xi has focused on energy reform to balance and fortify the Chinese economy. A key piece to this reform was shifting away from dependence on exports and increasing domestic production and consumption.
Over the course of the trade war, China had turned away from US oil and purchased West African crude, which ironically was a country from where the US purchased its oil before becoming energy independent. In the area of liquefied natural gas (LNG), China shifted its LNG expansion with other countries like Australia and Russia.
The diversion in the trade pipes was in 2018, 31.9% of US natural gas was imported by China. From January to November 2019, only 7.4%. Now, with Phase 1 in place, the outlook on energy is dim. Faced with hefty stockpiles and a warmer winter, China’s need for energy has waned.
The beauty of measuring trade negotiations by the volumes of goods being transported through the plumbing of maritime is that it is not political. There is no posturing or spin. The data speaks for itself. With tariffs still at play and the Trump administration leaving the ability to slap additional tariffs on China if deemed appropriate, the flow of trade continues to be clogged with uncertainty.
Traditionally the weeks before Chinese lunar new year, the port of Los Angeles would see a bump of vessels going in and out in anticipation of the country slowing down in observance of the holiday. This year, the holiday is early, on 25 January. The port of Los Angeles has not seen a discernible bump.
“All of this may be the new normal,” explained Mr Seroka. “The global trade and business communities need a sense of certainty so that we can execute our plans.”
This is a guest post by Lori Ann LaRocco, author of “Trade War: Containers Don’t Lie, Navigating the Bluster” (Marine Money Inc, November 2019).