Wednesday’s announcement of broad new tariffs on US imports, and China’s initial retaliation, has “rattled” global markets. For shipping, volumes freshly ‘tariffed’ this year has increased to 3.7% of all seaborne trade (>460mt of 12.6bnt). Direct exposure is increasingly material in some shipping segments (e.g. cars) and the indirect negative impacts on the world economy are gathering pace.
Trade Policy Shake-Up
A new ‘baseline’ tariff of 10% on all US imports, and tariffs of up to 50% on imports from countries with large trade surpluses, form the basis for “reciprocal” tariff measures announced 2nd April. US policy had already introduced tariffs, targeting specific countries: China (tariffs increased from 10% to 20%: now superseded), Canada and Mexico (tariffs of 25% but with exemptions for goods imported via the USMCA) and specific commodities: steel and aluminium (25%), and cars (25%). These earlier measures (and confirmed retaliation) took the share of global seaborne trade in tonnes freshly ‘tariffed’ to 1.6%. These latest “reciprocal” tariffs and China’s response (a 34% tariff on all US imports) now mark a step-up in both scope of ‘tariffed’ trade (to 3.7% of global seaborne volumes once in force) and tariff level. US imports from China will now be tariffed at 54%, Korea at 25%, the EU at 20%, and SE Asian economies at 30-45%.
Direct Segment Exposure
The US accounts for 5% of all seaborne imports and 7% of seaborne exports. But for individual shipping segments, tariff escalations are having varied direct impacts. Container volumes are now particularly “exposed” (12% of global container trade volumes now ‘tariffed’). In the 2018-19 US-China trade war, container tariffed trade reached 5% of global volumes and led to a ~0.5% drag on global box trade: a larger drag and some trade “reshaping” is now expected given higher tariff levels and broader geographical spread (e.g. SE Asia where manufacturing capabilities had grown rapidly). The car trade (26% of seaborne volumes now tariffed) is also exposed. LPG and ethane trade (14% and 55% of global volumes now ‘tariffed’) have become highly exposed from China’s retaliatory action. In other major sectors, direct impacts look more limited; only 2% of dry bulk trade is ‘tariffed’, 1% of LNG, and <1% of oil.
Economic Shock?
With recent US policy ‘fluid’, there is potential for negotiations and trade deals ahead while further countries have threatened to retaliate (risk of a major global ‘trade war’). Indirect impacts and risks to the US and broader world economy are heightening and may broaden shipping segment risk, with potential for a major shock to established supply chains and certain economies, as well as to investor sentiment and economic activity globally. As the US measures are digested and responded to globally, our framework will continue to track the developments and building complexities, including understanding the size of impacted trades, the timing of implementation, and potential for flows to be “continued”, “destroyed” or “substituted” in the near-term, as well as possible longer-term impacts. US policy more broadly also continues to add uncertainty for shipping, with port fee proposals, the Ukraine conflict, Red Sea disruption and sanctions all in focus. As we said in our recent review: time to take stock, and consider the risks and opportunities ahead.
The author of this feature article is Stephen Gordon. Any views or opinions presented are solely those of the author and do not necessarily represent those of the Clarksons group.
