A 25 percent tariff on $200 billion worth of Chinese imports scheduled to begin next month could be delayed until May – or may not occur at all, if a trade agreement can be reached – making it more difficult to forecast the effect on supply chains and the outlook for freight capacity.
A list of some 6,000 Chinese products ranging from frozen fish and meat to chemicals to fabrics – which the U.S. had already hit with a 10 percent tariff in September – had been scheduled to rise to 25 percent on January 1, but in December the deadline was postponed to March 1.
Negotiations wrapping up in Beijing this week, and continuing in Washington next week, are reportedly going well so far. But that could mean merely extending the deadline for an accord, as President Donald Trump is said to be open to pushing back the deadline to May 1.
“We must once again assume that cooler heads will prevail and that there will be a resolution to the U.S.-China trade dispute and that the scheduled tariff rate increase…is avoided,” said Ben Hackett, in his latest monthly Global Port Tracker analysis published earlier this month. “At the same time, we must also acknowledge that retailers and other businesses will try to bring some additional cargo in ahead of the deadline. The problem here is that warehouses and storage facilities are running out of space.”
Hackett told FreightWaves that despite this week’s reported optimism in the talks, “we’re probably still going to see a drop in imports next month, because importers have already brought in cargo forward” in anticipation of an increase in the tariff. If an agreement is reached, March could end up doing a bit better as imports begin to readjust, “but I don’t think it will be all that dramatic,” he said.
Containerized imports at U.S. ports ended strong last year, partly a result of importers looking to avoid higher tariff duties. With more moderate volumes traditionally moving into the U.S. during the first half of the year, however, tariff uncertainty may have less of an effect on imports.
Chinese retaliatory tariffs have a potential effect on export supply chains as well. According to data released on February 14 by the Washington, D.C.-based consulting firm Trade Partnership, U.S. export growth hit its lowest level last year in November due in part to a 37 percent decline in exports exposed to retaliatory tariffs. The U.S. Meat Federation said retaliatory tariffs caused industry losses of $860 million in value from June through December 2018.
Hackett’s projection for U.S. containerized imports for 2019 “remains in positive territory but with year-on-year growth only one-third of last year, according to his analysis. “Exports, on the other hand, have been hit by the trade disputes, particularly in the agricultural sector,” he said.
Whether or not President Trump ends up extending the 25 percent tariff until May, a group of six Democrats in the U.S. Senate wrote a letter yesterday urging him to negotiate a deal that addresses China’s predatory intellectual property practices.
Ending those practices is “a critical step towards reversing the damage such policies have had on the U.S. economy and restoring balance to the U.S.-China trade relationship,” the letter states.
President Trump, in the meantime, has been seeking even more tariff leverage. He asked Congress during his State of the Union address earlier this month to support a bill giving him the ability to more easily retaliate against tariffs imposed on the United States.