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Tariffs drive supply chain change; US probes power transformer imports


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Tariffs drive supply chain change; US probes power transformer imports

The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains and draws from global shipping and freight data.

Solid-state drives show risk from fluid state of trade war tariffs
The U.S.-China phase 1 trade deal may be at risk of failing due to deteriorating relations linked to the coronavirus pandemic as well as a shortfall in Chinese purchases from the U.S. That could lead to an increase in tariffs.

U.S. imports from China subject to tariffs continued to slide in March. Imports of mostly industrial products subject to 25% duties dropped 39.6% year over year in March, while the mostly consumer-goods in section 301 list 4A dropped 47.1%. The latter decline is likely due in part to coronavirus-related disruptions to Chinese supply chains and U.S. demand, rather than a pure tariff effect.

Yet, there are signs that even the lower tariff rate in list 4A products has driven a change in behavior in some products. U.S. imports of solid-state disc drives from China covered by list 4A duties slumped 82.6% year over year in March. Total imports linked to companies including Anritsu Corp., Centon Electronics Inc. and NEC Networks & System Integration Corp., nonetheless, increased 12.2% as a result of a 185.9% surge in shipments from South Korea and a 105.5% rise in imports from Malaysia.

(Panjiva Research - Tech. Hardware)

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Schneider Electric, ABB face national security tariffs, may need to transform supplies
The U.S. Commerce Department has started a national security trade review of imports of power transformers, cores and regulators under the section 232 program. U.S. imports of large power transformers climbed 33.8% year over year in the first quarter.

While Canada and Mexico are part of the USMCA free trade area, they may not be exempt from the review, with shipments from Mexico rising 24.2% year over year. Imports of transformers from China, likely the focus of the investigation, already fell in relation to earlier section 301 trade war tariffs.

Transformer core imports also primarily come from Canada and Mexico, with imports up by 29.4% and 165%, respectively, in the first quarter. Major importers will have to decide whether to alter their supply chains ahead of the review's completion, which could take about 270 days, or accept higher import costs.

Seaborne imports linked to Power Electronics Inc surged 181.2% year over year in the first quarter, while those linked to Schneider Electric SE and ABB Ltd. fell 64.8% and 10.1%, respectively. All three saw a marked drop in April, possibly reflecting coronavirus-related disruptions rather than tariff worries.

(Panjiva Research - Capital Goods)

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Smith & Nephew sees impact as COVID-19 cuts elective surgeries
Medical-device maker Smith & Nephew PLC reported a 7.6% year-over-year drop in revenues in the first quarter and reported a 47% slide in sales in the U.S. in April. Both declines are due to a slump in elective medical procedures due to the coronavirus pandemic.

Smith & Nephew may already have been scaling back activity, with U.S. seaborne imports linked to the firm falling 15.1% year over year in April. The firm's imports of medical devices, as opposed to wound dressings and other products, were unchanged in April, while shipments of medical devices by all importers climbed 23.6% year over year. The latter included a 112.5% surge in shipments linked to Zimmer Biomet Holdings Inc. as well as a 68.8% rise in imports associated with Koninklijke Philips NV.

(Panjiva Research - Healthcare)

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Matson hopes faster means better as COVID-19 overshadows outlook
Container shipping firm Matson Inc. saw revenues decline 3.5% year over year in the first quarter as a collapse in logistics brokerage revenues was offset by growth in container handling on routes from Hawaii and Alaska. Continued growth in the latter two will be crimped by reduced tourism and lower oil prices linked to the pandemic.

Shipping on the firm's China-U.S. routes fell in the first quarter but may recover as the company "expects the disruption and loss of capacity in the transpacific air cargo and ocean freight markets to provide opportunities for its differentiated, expedited CLX service."

That benefit has yet to be felt across the board. Shanghai-to-U.S. volumes handled by the firm fell 16.4% year over year in April compared to a drop of 11.2% for all container lines. The performance of Matson's smaller Ningbo-U.S. routing did better than average, rising 11.6% versus 2.2% for all liners.

(Panjiva Research - Logistics)

Work-from-home rescued China's export growth in April, trade war worries rise
China's international merchandise trade activity fell just 5.0% year over year in April, including a surprising 3.2% increase in exports. The latter included a 4.1% rise in shipments to the ASEAN region and a 2.2% increase in exports to the U.S.

At the product line, the increase in exports was largely down to electronics, plastics and textiles. A 49.9% surge in exports of computers reflects global work-from-home demand, with the $6.37 billion of growth in computer exports compared to a year earlier representing 92% of the value of the growth in total Chinese exports.

There was also a 49.4% surge in exports of textiles, but apparel and footwear exports dropped 30.3% and 47.1%, respectively, likely reflecting a drop in retail demand globally due to coronavirus lockdowns.

Importantly, there was an 11.2% drop in imports from the U.S. That would suggest a fourth month of imports running below the commitments made in the phase 1 trade deal.

In turn, that increases the likelihood of an increase in trade hostilities between the U.S. and China, with President Donald Trump indicating a view will be expressed "in a week or two." Talks between trade ministers from both sides next week may be an opportunity for de-escalation.

(Panjiva Research - Tech. Hardware)

Christopher Rogers is a senior researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.

The Supply Chain Daily has an editorial deadline of 5:30 a.m. ET. Some external links may require a subscription. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.