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US-China trade war and the shipping industry

Ship-Technology recently has analyzed the US-China trade war from the point of view of the shipping industry and it sees that the trade war if grown fully would not do well for the shipping; some say, however, that it would benefit the industry. At present, it seems everything is uncertain; if anything is certain, it is only uncertainty. 

Trade wars are both “good” and “easy to win”, said US President Donald Trump, shortly after announcing a new 25% tariff on steel imports and 10% levy on aluminium imports at the start of March.

The US President was sort of fulfilling his electoral pledge of protectionism.

In his inaugural address he had said that, when it comes to trade, “protection will lead to great strength and prosperity.

It is not difficult at all to find out the target nation; it is China. He has always looked upon the trade with China as asymmetrical and one-sided obviously suggesting that China derives all the benefits of the trade. The President even said that Beijing is undercutting US companies and torpedoing jobs and communities across the country as a result of its unfair commercial practices.

U.S. and China began a trade war with both the countries imposing import tariff on the products of the other country.  Though America began the trade war, China lost no time in taking retaliatory measures. This trade war can be considered just as Sin0-American affair; but, as Ship Technology points out, since Europe has been granted exemption from tariffs – as well as Argentina, Australia, Brazil, South Korea, Canada and Mexico – there are concerns that tensions could spell out bad news for global trade.

The shipping industry experts fear that the situation if grows into a full-blown trade war, will affect the shipping industry in terms of its volumes which in turn would impact on the bottom lines for container shipping lines.

“There is no doubt that a trade war, between the US and China – and any other countries for that matter, is outright bad for shipping,” says Peter Sand, chief shipping analyst at Baltic and International Maritime Council (BIMCO).

“The shipping industry is feeding on globalisation and facilitates prosperity across the globe. Countries engaging in trade wars are harmed by it, as it results in suboptimal use of resources.”

According to Sand, dry bulkers – used for the transportation of steel and soybeans – are most likely to be hit hardest. The impact on container shipping is set to be on “eastbound transpacific head haul trade from the Far East to North America”.

“Amongst the top ten commodity categories affected, we have the likes of electrical machinery, metal manufactures and specialised machinery,” he says. “Imports into the US are likely to go somewhat down as the tariffs enter into effect.

“There will also be fewer boxes moving west from the US, although this is not key to shipping. It means more to the ports than to carriers, as back haul freight merely covers a part of the repositioning costs.”

The CEO of the Northwest Seaport Alliance (NWSA) feared that the trade war between the U.S. and China could do more harm than good for the local economy.

 “Our success as an airport and seaport gateway is inextricably linked to China,” said Wolfe. “While there are justifiable concerns about China’s trade practices, we continue to believe that productive engagement and negotiations are the best path to ensuring a fair and level playing field for mutually beneficial trade.”

According to preliminary studies conducted by independent maritime research consultancy Drewry, a worst-case scenario could see 1% of global loaded container traffic exposed to higher costs as a result of the new tariffs – negatively impacting on overall container growth.

“We are very concerned this will turn into a full-blown trade war, in which case there will be no winners,” explains Simon Heaney, senior manager for container research at Drewry’s London office.

“The container market is in recovery mode after some tough years and any tit-for-tat trade dispute will be an unwelcome development for shipping lines, even if a lot of the tariff list goods will actually be airfreighted rather than move by sea.”

Some, however, have chosen to dismiss predictions of a catastrophe at the hands of the levies.

Speaking to Bloomberg in the aftermath of the announcements, Gerry Wang, co-founder and former CEO of Hong Kong-based containership charter owner Seaspan, argued the net impact on the shipping industry to be “minimal”. The tariffs, claimed Wang, would be offset by tax cuts, which could generate more volumes, and increase demand.

“Being a very optimistic industry, some also believe that the industry could benefit from this,” admits Sand. “As the existing trade patterns shift, more ton-miles may be added.”

Right now, the only certainty for the shipping industry is uncertainty. With trade between China and the US accounting for around 4% of global commerce, it seems likely that any ongoing dispute will have consequences for global trading patterns at some point in the future.

“It is very hard to second guess how this will end,” says Heaney. “Very recent history suggests it might not be anything more than sabre-rattling to appeal to President Trump’s core voters, as tariffs on steel and aluminium announced in early March were quickly followed by a long list of exemptions.

“The threat to Chinese exports could just be another example of the US President’s aggressive trade tactics designed to force concessions, but it’s a very dangerous game of chicken, as China is unlikely to back down.

“The industry is genuinely afraid of further escalation,” says Sand.
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