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.
Trump's latest trade war escalation brings tariffs direct to consumers
President Donald Trump has announced that tariffs will be applied to all Chinese exports not already subject to them from Sept. 10 at a rate of 10%. That is likely to jeopardize the next round of negotiations — also due to start in September — as well as drive China to implement non-tariff retaliation such as the unreliable entities list and redirect state-owned enterprise spending.
The biggest products not yet covered are all in the consumer sector and include: smartphones, where Panjiva data shows imports from China were $43.2 billion in 2018, representing 81.8% of total U.S. phone imports; apparel and footwear worth $42.1 billion, representing 37.6% of the total; laptop PCs worth $37.5 billion, equivalent to 94.4% of the total; toys worth $11.9 billion, which is 97.6% of the total; and video game consoles worth $5.4 billion, representing 97.6% of the total.
All five products have peak imports between September and November each year, so there is likely to be an acceleration of imports to try and beat tariffs, leading to disruption of supply chains and shipping networks. Panjiva's data indicates Dell Technologies Inc. and HP Inc., for example, may be highly reliant on China and ship by sea. They may shift shipping to airfreight depending on profitability and model release considerations.
There's already some evidence of stockpiling in the telecoms sector in May after the prior round of negotiations broke down. There may have been a 24.3% year-over-year surge in phone handset shipments in May even though there has been a long-term downtrend with a 1.9% decline in the past 12 months. The normal peak in imports is usually in November ahead of Apple Inc.'s normal release cycle.
The tariffs may end up being limited in scope. Tariffs on toys will not prove popular and Hasbro Inc. has already indicated it will increase prices. Similar duties on apparel could be passed through to consumers and prove highly regressive. A footwear industry group that includes adidas AG and Under Armour Inc. said in May that tariffs would be "catastrophic for our consumers, our companies and the American economy as a whole."
Puma sprints away from China, Fila runs the opposite way
Sports shoe maker PUMA SE is reducing its exposure to China for shoe imports ahead of tariffs, though CEO Bjorn Gulden has stated that "there will be a price increase in the market that will be visible for the consumer." Those will likely be implemented in September if the Trump administration sticks to its latest threats to widen tariffs to cover all Chinese exports.
Panjiva data shows China only represented 6.8% of U.S. seaborne imports associated with Puma in the 12 months to June 30 after a 58.6% year-over-year drop in shipments in the second quarter. Puma's ability to raise prices will depend in part on its competitors' actions. Adidas may have followed a similar route to Puma with a 25.6% year-over-year drop in imports from China in the second quarter. F.I.L.A. - Fabbrica Italiana Lapis ed Affini SpA, by contrast, likely increased its exposure with an 18.6% rise.
Yara, Mosaic yet to benefit as Brazil's China bean bounce remains unharvested
Brazilian fertilizer sales may be helped by increased exports of soybeans to China — resulting from the latest downturn in U.S.-China relations — as well as increased cereal sales. Brazilian soybean exporters including Bunge Ltd. and Cargill Inc. have yet to see an uplift in exports to China. Panjiva data shows they likely fell 30.4% year over year in the second quarter.
Exports of cereals may have surged 5.5x over the same period, potentially due to an earlier harvest. Brazilian imports of fertilizer have only increased 3.2% year over year in the second quarter after a decline in June. The largest importers, Mosaic Co. and Yara International ASA, might have lost market share after imports associated with them fell 15.7% and 9.3%, respectively, in the second quarter.
US businesses report worst export outlook since February 2016
Trade concerns are already weighing heavily on U.S. business sentiment — more of the same is possible with the latest round of proposed tariff increases from the Trump administration. Export order expectations in the latest ISM survey of American businesses showed a reading of 48.1 in the July survey from 50.5 a month earlier — below 50 indicates an expected contraction. That was the worst result since February 2016, though companies increasingly see tariffs as the norm.
The U.S. has therefore joined China and Germany with negative outlooks for exports. That comes as the technical trade recession that started in May — with two consecutive three month year-over-year drops in exports — likely continued in June. Twenty out of 24 countries that have reported June export data showed a decline with an arithmetic average of a 7.7% year-over-year slide.
(Panjiva Research - Policy)
Vale's iron ore and steel exports continue to recover after mining disaster
Vale SA has steadily increased its exports of iron ore from Brazil following a mining disaster earlier in 2019. Shipments likely rose 15.7% sequentially in June versus May, Panjiva data shows, and by 86.9% from April.
Yet, that still represents a 25.6% year-over-year drop. Total Brazilian exports rose 4.3% sequentially but fell 12.8% year over year. Improved iron ore production also likely helped Brazilian exports of steel, which may have risen 9.3% year over year in the second quarter after a 24.1% slump in the first quarter.
Shipments to the U.S. may have surged 61.5%, reflecting the implementation of quotas after restriction a year earlier. Steel exports globally from Brazil associated with Vale rose 27.9% year over year in the second quarter while ArcelorMittal's may have fallen 6.3%.
Christopher Rogers is a senior researcher at Panjiva, which is 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.
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