How the Trade War could Affect the Shipping Industry (Aug 15, 2018)
Impact of US-China trade war on shipping industry
In the spring of 2018, President Trump began increasing tariffs on many imported goods. He sees these increased import costs as a means to an end. By increasing the costs of foreign goods, consumers may be more motivated to purchase goods made in the United States. In the end, this is supposed to boost our economy and increase the demand for jobs. On the other hand, increasing tariffs has also created a trade war. Countries, like China, are placing their own tariffs on goods coming from the United States.
Recently, President Trump expanded these tariffs to include a wide range of consumer-popular products. Before this expansion, the import costs mostly targeted industrial building materials. That meant that consumers wouldn’t see the effects of the tariffs for a while, if at all. Now, consumers and those in the shipping business might be seeing the effects of these tariffs soon. From decreased demand to increased prices, we’re all just waiting to see how this will all play out.
The Trade War
One of the biggest effects of these tariffs is the resulting trade war. Every country targeted by the new import costs retaliated, even Canada. Not only that, but U.S. companies that sell their products abroad are seeing an increase in costs.
The newest round of products on the chopping block are popular with consumers. From bicycles to refrigerators, nothing seems to be safe. Even cosmetics and tools will be subject to the new 10% duty. A travel-goods category was also included, which lists wallets and luggage as the tariff’s latest victims.
Other impacts of the trade war include licenses being suspended for US companies abroad, as well as delayed approvals for a variety of business ventures. However, the main focus of these tariffs is still centered around industrial goods.
If China retaliates again, President Trump has vowed to impose even more tariffs. That means that we may not be seeing an end to this trade war anytime soon.
For those in the shipping industry, imports and exports are important matters. When a trade war breaks out, there can be many negative effects. Since maritime shipping accounts for 80% of all trade, it is guaranteed to be impacted the most.
CNN estimates that about 7% of U.S.-Asian trade could be at risk, as well as 1% of all trade. With the already slim profit margins of the shipping industry, this could have disastrous effects.
Seafood is one large industry that has been targeted by the recent list of additions. Tilapia, salmon, cod, and tuna are all included. Seeing as the United States imports $2.7 billion in fish from China, this could have crippling effects on the market.
The automobile industry may also be affected. While vehicles themselves are not being targeted, many components that go into them are. For example, car seats and mats will be subject to the new duties.
Building materials were targeted originally and the list is only expanding with the new tariffs. Flooring, screws, hammers, and household appliances will all be subject to increased duties.
The last major market that will be affected is the beauty industry. A variety of cosmetics and bath products are already listed for increased duties. This list is only expected to expand as the trade war continues, targeting the luxury items that are most popular in the United States.
It may seem that there are no benefits to a trade war for those in the shipping industry. However, a silver lining can always be found if one looks hard enough. While foreign shipping will suffer greatly, domestic shipping may see a boost. With the reliance on domestic goods, the country will need better ways to transfer products across the country. This could potentially create a whole new industry of shipping that we have never seen before.
Another positive effect of the trade war is that not all consumer products are being targeted. The goal of the war is to target the infrastructure of a country, rather than the consumers. Because of this, many products will continue to be imported without increased duties. For example, finished footwear is not currently on the list. That means that the 70% of the U.S. footwear market that comes from China will stay intact for the moment. Additional products that are free from these new tariffs are smartphones, televisions, and clothing items.
An important factor to note is foreign trade zones. While the verdict is still out, many companies with zone status may be able to avoid the new tariffs. Since this trade war is so unprecedented, Customs currently has not made a decision on the matter. With almost 200 foreign trade zones in the United States, this could be a saving grace for the shipping industry.
Unfortunately, President’s Trump’s new tariffs are based on a law that was established in 1962. It allows the government to limit imports that pose a threat to national security. While this is debatable, the law could limit the protections that foreign trade zones provide. Companies and shippers alike are awaiting a ruling on this new policy. For now, at least, trade zones are something to keep an eye on.
What is very clear about trade wars is that businesses and consumers will see change eventually. It is unclear how large these changes will be, as this trade war is unlike any other in our history. While the United States is uniquely positioned to win, no one knows what the end result will be.
Outlook for the Shipping Industry
This trade war could have serious effects for the shipping industry. It is important for shippers to stay up to date as changes take place and be prepared for them.However, it could also create a new kind of trade system that helps support the sale of domestic goods. No one knows exactly what is going to happen, but change is coming.