The failure of the U.S. and China to settle their trade hostilities last week means retailers and shippers face ongoing risk and uncertainty, potentially through the first half of 2019, as to the cost and sourcing of imported goods.
On May 10, the U.S. Trade Representative immediately raised tariffs on $200 billion worth of Chinese-made goods from 10 percent to 25 percent. The surprise move comes after President Donald Trump made multiple delays to raising tariffs citing the progress in U.S.-China trade talks.
With President Trump saying “we are right where we want to be with China,” he is also upping the ante with the U.S.’s largest trading partner.
The U.S. Trade Representative today will file paperwork May 13 to increase tariffs on another $300 billion in goods coming from China. The latest round would include a broad swath of consumer goods including personal electronics, toys, and other household goods, covering virtually every import from China.
The latest tariffs come just about one month after the one-year anniversary of the first list of $50 billion in Chinese goods the President hit with tariffs under his Section 301 authority to retaliate against unfair trade practices.
China’s State Council issued its own salvo in the trade war on Monday as it said it would raise tariffs on $60 billion in U.S. imports from rates of 5 percent to 10 percent to as much as 25 percent.
White House Economic Adviser Larry Kudlow said over the weekend that China may yet retaliate.
The next milestone for a deal may not be until the end of June when President Trump and Chinese President Xi Jinping meet in Japan for the next G-20 summit, he added.
While the tariffs may only shave a few percentage points off of U.S. economic growth, Kudlow also admitted that U.S. consumers will feel the squeeze as “both sides will pay” due to the latest trade war salvo.
Despite hopes the trade war would wind down, freight forwarder Laufer Group said shippers are stuck in an “ever-changing world of increased tariffs and retaliatory tariffs.”
The trade war is “clearly having an impact on our import customers and we expect this environment to continue for the immediate future,” Laufer Group said in a statement.
Freight forwarder A.N. Deringer said the tight deadline for raising tariffs caused “confusion” as to how the 25 percent tariffs would be applied.
The U.S. Trade Representative said the new duties will apply on the date of entry of goods into the U.S. and the date of export. Tariffs usually only apply upon the date of entry.
Peter Friedmann, counsel for the Coalition of New England Companies for Trade, said goods exported from China before May 10 and entering before June 1 will face the earlier 10 percent tariff.
But anything exported from China after May 10 or arriving after June 1 will face the 25 percent tariff.
“Many goods on the water today from China to East Coast ports will arrive after the 10 percent window closes on June 1,” Freidmann said.
As for cargo markets, the tariffs have yet to register much change. The Freightos Baltic Daily Index for container shipping from China to North America West (SONAR: FBXD.CNAW) is down to $1,485 per forty-foot equivalent unit (FEU) from $1,590 per FEU a month earlier.
The price for shipping containers from China to North America East (SONAR: FBXD.CNAE) has firmed to $2,913 per FEU from $2,740 per FEU due to the draft restrictions on the Panama Canal.
The latest round of tariff increases have not yet had any direct impact on shipping markets yet, according to the Ningbo Shipping Exchange.
But S&P Global’s Container Freight Market Editor George Griffiths said the new tariffs could have a “huge impact” on the trans-Pacific trade as “capacity utilization (is) likely to tumble” as U.S. shippers pull back due to the tariffs.
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