Tariffs seen as undercutting global shipping and trade

US west coast ports have seen increases in volumes but the effect may be short-lived. Some distortions are already visible in sectors where higher tariffs have been implemented or announced, the OECD says.

The trade war between the US and China has had obvious recent positive effects on US west coast ports, but economists generally see the benefits as short-lived. Over the longer term, the consensus is that, without an agreement between the two nations, shipping and trade will decline in the coming year.

“US west coast ports have benefited in 2018 year-to-date from the tariffs, but that is only temporary as shippers have tried to beat the tariff imposition dates for subsequent rounds of tariffs on transpacific trade route goods,” economist Paul Bingham told Lloyd’s List.

Mr Bingham said that the acceleration of shipments, also called front loading, has drawn volumes forward, but not all at once. He warned that payback is coming, with “outlook for port volumes for the affected commodities negative unless the trade dispute can be resolved”.

That view fits with the findings of a report by the Organisation for Economic Co-operation and Development which claims that international shipping and trade have generally been adversely affected by the series of tariffs that have come into effect this year, with a risk of a further downward trend in the coming year.

“New restrictive trade policy measures have resulted in marked changes in trade flows and prices in some targeted sectors, particularly in the United States and China, with some transactions being brought forward ahead of announced tariffs,” the OECD said in a report.

The OECD report shows that annual shipping traffic growth at container ports, which represents around 80% of international merchandise trade, has fallen to below 3% in 2018 from close to 6% in 2017.

The OECD said that high frequency indicators, such as export orders and container port traffic, suggested that the prospects for future trade growth remained “modest”.

Although the direct economy-wide impact of the restrictive trade policies imposed this year is only starting to appear, the OECD said that “some effects and distortions are already visible in sectors where higher tariffs have been implemented or announced”.

“Growth in the volume of merchandise imports into the United States from China has started to slow and US domestic prices have risen sharply for some affected products,” the report said.

The OECD report coincided with figures released by the US Census Department this week showing that new orders for manufactured durable goods — products designed to last at least three years, such as computers and machinery — in October decreased by $11.5bn, down 4.4% on the previous month, to $248.5bn.

Shipments of manufactured durable goods in October decreased $1.4bn, or 0.6% month on month, to $254.5bn, after two consecutive monthly increases. This followed a 1% September increase. Among segments, transportation equipment shipments led the falls, sliding $1.6bn, or 1.8%, from September to $87.6bn, also following two consecutive monthly increases.

The Census Department figures echo The Institute for Supply Management, which said its Purchasing Managers Index for US manufacturing fell to 57.7 in October, down from 59.8 in September and below market expectations of 59.

According to Ben Hackett of Hackett Associates: “The reading pointed to the slowest growth in factory activity in six months. This is not a positive sign. As industrial production slows, so will imports.”

Source: Lloyd’s