The impact of the latest round of tariffs in the US-China trade war that went into effect last month has raised concerns of long-term impact in the container terminal sector.
According to Peter Levesque, Group Managing Director, CEO of Modern Terminals and former Chairman of the American Chamber of Commerce in Hong Kong, this latest round of tariffs will have more impact on the shipping industry because consumer goods, traditionally shipped in containers, are included on the list of targeted goods.
“We haven’t really seen an impact yet in terms of lower volume for carriers, mainly because there’s typically a lag time between purchase orders and when goods are ready to ship. That lag time is usually between three and six months,” states Levesque.
Levesque points out that, with the uncertainty bred by the upcoming mid-term elections in the US and the imminent G20 meeting between President Xi and President Trump, it’s difficult to predict the long-term impact of tariffs. He says, “There’s also potential that this could go on for a very long time, and that’s obviously creating all the uncertainty.”
The uncertainty brought about by tariffs has a different impact on the other side of the Pacific. In California, the ports are experiencing a lot of activity, with customers trying to speed as much product through the system as possible prior to the tariffs activating. Levesque shares, “They’re getting the opposite end of this; they have a situation where there’s a lack of capacity for warehousing.”
For US companies manufacturing in China, or sourcing within China, it’s not a stretch to imagine the tariffs could see them seeking alternatives. Shifting manufacturing to a new country is a significant move for any business, and there are questions regarding the region’s ability to absorb the enormous manufacturing capacity of China.
“If I were a US company manufacturing in China, I would really be waiting to see over the next several months how all this plays out before I moved my manufacturing,” said Levesque. And what of the logistics capacity in these countries? “The Intra-Asian network of shipping by ocean, or by air, works really well. But it comes back to countries’ infrastructure; and how much they can absorb when it comes to manufacturing and the ability to move domestically within their own countries.”
“We definitely see that companies are working on contingency plans, as they should. The question is whether they enact that plan or not. That’s where the wait and see piece comes in,” concludes Levesque.
The US has levied tariffs of 10 percent on US$200 billion worth of Chinese imports, including appliances and furniture. From 1 January 2019, the level of the additional tariffs will increase to 25 percent.
As predicted, China responded swiftly. Within 24 hours, the Chinese Ministry of Commerce said it would levy tariffs of 5 to 10 percent on US$60 billion worth of US imports. On Wednesday 26 September 2018, China announced it would cut import tariffs on a range of non-American products that include electrical goods and textiles.
This combination of decreasing the tariff on non-US products, while increasing tariffs on US imports was likely done in an effort to relieve potential increase in costs for Chinese consumers. This action by the Chinese government also works to discourage Chinese consumers from purchasing products imported from the US.
While two of the world’s largest economies duke it out in this escalating trade war, the fallout will naturally impact the supply chain. The first round of tariffs, introduced in July, was more focused on high-value products, and these affected the airfreight industry.