Proposed US auto tariffs ‘would affect key east-west box trades’

New import taxes on European cars and auto parts ‘would represent a significant escalation of transatlantic tensions’ and have a severe impact on transatlantic container flows, reports Drewry.

Leading global container lines, key US ports, and specialist car carriers will all be adversely impacted should proposed new US automotive tariffs be implemented in the second quarter of 2019, according to an impact analysis published by global shipping consultancy Drewry.

The study explored the impact of three different tariff scenarios: a low-intensity scenario with 5% tariffs imposed on all US imports of finished vehicles and auto parts; a medium-intensity scenario at 15%; and a high-intensity scenario with 25% tariffs imposed.

“In our analysis, we assume tariffs will be imposed in the second quarter of 2019 (2Q19), mid-May, and that US importers will start passing extra costs to consumers and supply chain stakeholders by 4Q19,” said Neil Davidson, Drewry’s senior analyst for ports and terminals. “We also assume some US importers will absorb all or part of the extra cost, while others will delay their decision and that some foreign finished vehicle producers may lower their prices to protect sales.”

The main findings of the paper are that for US imports, the volume of US finished vehicle and auto parts imports will likely be adversely impacted, with the most negative effect expected between 2020-2021; Baltimore, Los Angeles/Long Beach and the Port of New York/New Jersey are the US ports most exposed to the effects of the US auto tariffs.

On the eastbound transpacific trade routes, with Japan holding 67% of the eastbound finished vehicle imports trade, Japan is the sourcing country most exposed to tariffs. China is most exposed to the auto parts tariffs, holding 61% of the eastbound auto parts imports trade, the study found.

In terms of the westbound transatlantic trade route, Germany is the sourcing country most exposed to the Trump auto tariffs as it holds 63% of the westbound finished vehicle imports trade, and 78% of the westbound auto parts westbound trade. And with car carriers already suffering from overcapacity, the finished vehicle shipping sector is particularly vulnerable and will naturally be negatively affected.

Drewry noted: “The auto industry is a globalised and heavily interlinked industry with a complex supply chain. Any level of artificial cost imposition is likely to have a myriad of consequences, both intended and unintended, for stakeholders operating in the key East-West trade routes.

“Further, there is understandable concern any tariff imposition by the US will trigger retaliatory action by the EU, further exacerbating the situation.”

Drewry’s director of research products, Martin Dixon, commented: “Any imposition of US tariffs on European cars and auto parts would represent a significant escalation of transatlantic tensions between the US and the EU and, given the importance of these commodities, could lead to a serious escalation. Such a situation would have an even more severe impact on trade flows on transatlantic trade routes with ominous consequences for a global maritime industry already grappling with over-capacity, rising operating costs and new regulatory compliance.”

Explaining the background to the proposed tariffs, Drewry noted that in May 2018, the US Department of Commerce had initiated an investigation into whether finished vehicle and auto parts imports pose a national security threat. The final report was submitted to President Trump on 17 February, and he has 90 days starting from that date to decide whether to act upon the recommendations.

The report has not yet been made public, and when recently asked about it, President Trump said, “We’ve studied it very carefully. We’ve seen the results, but the bottom-line result is whether or not we can make a deal with the EU that’s fair.”

Drewry noted that, as previously suggested, “President Trump wants to use the findings, which we believe recommend the imposition of tariffs, as a bargaining chip in the trade negotiation deal with the EU. US tariffs on European cars and auto parts would imply a significant escalation of trans-Atlantic tensions because the value of EU automotive exports to the American market is about 10 times greater than that of the bloc’s steel and aluminium exports combined, in monetary terms.”

Source: Lloyd’s