Adam Smith, author of the book “A Wealth of Nations” and referred to by many as the founding father of capitalism, once said, “Every man lives by exchanging.” In the context of today’s ongoing trade war between the US and China, this notion of the benefits that comes from a free exchange of goods seems to be lost. Regardless, to understand an issue is the first step to being able to solve that issue. This blog post will therefore explore the ongoing trade war between the US and China to provide—I hope—a better understanding of what is happening and what is to come. By understanding this trade war more completely, we can then in the future make inferences regarding impacts freight forwarding industry and ocean freight shipping rates writ large.
NOTE: While the US-China trade war is the focal point here, it is not meant to imply that the ongoing tariffs with the rest of the world centered around things like aluminum and steel are also not important.
Relative to China, in March 2018 the US President announced a first round of tariffs, valued at $50B, on Chinese goods. A second round of tariffs on $200B of Chinese goods was also announced and eventually went into effect in September 2018. At the same time, the US President warned of a third round of tariffs that would increase the tariff rate against that same $200B in goods. We are now less than a month away from the implementation date for that third round. It is yet to be seen if this third round can be avoided or not, but many are reporting that China and the US are working hard to prevent it from happening. For a more comprehensive overview of the US-China Trade War, please see the following published by the BBC: A quick Guide to the US-China Trade War
Specifically, on March 1, the US has said it will raise tariff rates from 10% to 25% if a deal is not reached. The UN Conference on Trade and Development (Unctad) has warned that if this next phase of tariffs goes into effect, the impact “The implications for the entire international trading system will be significantly negative.” Specifically, Unctad’s head if International Trade, Ms. Pamela Coke-Hamilton has said: “There'll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures.” So will the additional tariffs actually occur? The jury is still out on the answer.
The BBC News reported on February 1 that China’s state media is saying “China's trade delegation says it made "important progress" in the latest round of talks with the US.” This was affirmed in a statement by President Trump where he said, “We have made great progress” and agreements were made by the Chinese to purchase more US soybeans and to import more US goods.
To date, no firm agreements have been made and recent events e.g., the arrest of Huawei CFO Meng Wanzhou, have made things more complicated. Also, while the increase of tariffs from 10% to 25% is estimated to be worth $200B, President Trump has signaled the possibility of yet more tariffs worth an additional $267B that could go into effect. In the face of this, as recent reports of a Chinese economic slowdown emerge, there seems to be ample reason to try and push for a solution. As the March first deadline looms, time will tell if a deal is able to be reached or not.