US-China Trade War: Ramifications for Maritime Industry

(Image Courtesy: NDTV)

The shipping industry has a lot to lose in an ongoing trade stand-off between the United States and China. In just over a month, what began with tariffs on steel and aluminum has grown into a war of words between the U.S. and China — a showdown now threatening nearly 1,500 product lines.

On March 1, Trump announced that the U.S. would be imposing broad tariffs on steel and aluminum imports. The announcement, which reportedly caught even some White House officials by surprise, was soon confirmed in a tweet from the president.

Millions of jobs and the bottom lines of major maritime shipping companies, which account for 80% of all global trade, depend on goods traversing the oceans. Even in times of robust trade, shipping industry profit margins tend to be slim — about 3%, according to Simon Heaney, senior manager of container research in London for Drewry, a maritime research consultancy.

Now that China and the US have threatened to swap 25% tariffs on a range of goods worth a total of about USD 100 billion, the maritime industry is worried that shipping volume will fall along with profits

The shipping firms are concerned as they are recovering out of some lean years. Tariffs could put up to 7% of Asia-to-US shipping at risk and impact 1% of total global shipping, according to Heaney. Shipping revenue in 2017 totaled USD 210 billion.

While the policy was scaled back to allow for significant exemptions for countries that negotiated with the U.S., the fears of a protectionist White House sparking a global trade war lingered. The tariffs indirectly affected China, which accounted for about 2 percent of U.S. steel imports in 2017.

“It’s going to hurt container lines,” said Mark Szakonyi, executive editor for the Journal of Commerce. He warned that container ships sailing from the US to China could get stuck with partially empty hulls and move air back to Shanghai.”

Last year, for example, the US shipped nearly 57,000 containers worth of soybeans to China, but with a 25% tariff looming it’s unclear if as many soybeans will travel a well-worn route down the Mississippi and out the port of Louisiana headed for China.

Restrictions on other products would hit America’s busiest port cities, like New York, Los Angeles, and Long Beach, California. While few Americans work on the ships themselves, nearly 10 million Americans work in the industry, according to the Bureau of Labour Statistics. Occupations include aircraft cargo handlers, truck drivers, ship engineers, hoist and winch operators and more.

The list of products targeted by the US is likely to focus on the technological sectors and those where it is considered that China has an unfair advantage. The chemicals sector seems so far to be immune. In any event, liquid commodity chemicals imports from China to the US are minimal, totalling just 4,000 tonnes in 2017.

(Image Courtesy: The Wall Street Journal)

However, the US did import 149,000 tonnes of caustic soda solution and 53,000 tonnes of inorganic acids, primarily phosphoric acid. The US is also estimated to have imported around 0.7M tonnes of liquid organic speciality chemicals, with scarcely any liquid natural products.

With Washington’s decision earlier to impose punitive tariffs on Hong Kong-made aluminium products, Yau identified three areas that would hit the city the hardest: entrepot trade, investment in made-in-China products and the financial market. Industrial sources are talking about transferring investment to Southeast Asian countries, where costs are also lower, to avoid future unpredictability in China-US trade relations.

(References: Tanker Shipping & Trade, South China Morning Post, CNN Money)

Sea News Feature, May 14