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.
Mission not yet accomplished — US-China relations in 2020
The U.S.-China trade war was the defining trade policy challenge for international supply chains since August 2017. It won't be resolved by the "phase one" trade deal due to be signed in mid-January. Putting aside longer-term issues such as decoupling, there are at least five risks to consider for 2020 alone.
The first is a simple matter of definitions. China's measure of the trade-in-goods deficit — the Trump administration's key measure of trade policy success — in the 12 months to Nov. 30, 2019, was $302 billion, compared to $357 billion on U.S. measures. A disagreement over statistics could cloud the post-deal enforcement period.
Additionally, China will likely want a clear path to removing all tariffs as part of a phase two trade deal — potentially insisting on such a commitment upfront. There's been a clear success for Trump administration tariffs in cutting U.S. imports from China. Shipments of list 4A consumer products fell 29.2% year over year in November 2019 while list 3 products — a mix of consumer and industrial products — dropped 39.3% due to a higher 25% tariff rate.
Delivering the projected $100 billion per year of increased purchase commitments from China will prove challenging. Services exports to China, which may be held by new U.S. rules on AI software sales, were worth $57.1 billion in the 12 months to Sept. 30, 2019, but have grown by just 1% since 2017.
A significant diversion of existing U.S. commodity production will also be needed. There may be a need to redirect all U.S. oil exports (worth $72.9 billion in the 12 months to Nov. 30, 2019), LNG ($1.08 billion) and soybeans ($21.7 billion).
Finally, enforcement terms will be key but are currently unknown. Seasonality may be a challenge given that the peak in Chinese soybean imports from the U.S. of $3.52 billion was reached in October 2016 while shipments of energy including oil and gas hit a ceiling of $1.35 billion in October 2017. Measurable delivery may therefore not arrive until closer to the U.S. elections.
Trade war in waiting — US-EU relations in 2020
A worsening of trade relations between the U.S. and EU could be the defining factor for global trade policy in 2020. Talks that started in July 2018 made little progress ahead of the arrival of a new European Commission and because of threatened, but not implemented, U.S. automotive tariffs.
EU Trade Commissioner Phil Hogan is looking to "reset" trade relations at meetings in mid-January, specifically including existing U.S. tariffs. U.S. Trade Representative Robert Lighthizer, meanwhile, has identified "basic trade problems" with the EU. The U.S. will also focus on its trade deficit with the EU, which reached $178 billion in the 12 months to Nov. 30, 2019, the second largest after China. The aerospace sector is already an area of conflict.
The U.S. has already applied tariffs in a wide-ranging WTO case while the EU could move against U.S. aerospace exports worth $45.8 billion in the past 12 months.
A bigger issue will be EU plans to implement a digital services tax, with U.S. tariffs on French exports a potential catalyst for conflict. In the case of an EU-wide DST, the U.S. would likely target the machinery and autos sectors for tariffs — representing 16.6% and 10.6% of EU exports, respectively — as well as luxury goods with a potential toll for LVMH Moët Hennessy - Louis Vuitton Société Européenne, Coty Inc. and Barry Callebaut AG.
Similarly, the EU's new Green Deal will likely include a carbon border tax, which could capture U.S. steel and aluminum exports worth $821 million and $875 million, respectively, including shipments by Kaiser Aluminum Corp. and Arconic Inc.
Natural gas, meanwhile, may be an area of potential concord. The EU only takes 4.1% of its gas from the U.S., while the latter's exports could more than double in the next two years.
Sonos disconnected from rising smart speaker market
Smart speakers are becoming an increasingly ubiquitous part of everyday life, as highlighted by announcements at the CES trade show of new products from Samsung Electronics Co. Ltd., Royole Corp. and VOXX International Corp.. The strength of demand for speaker-type products can be seen in U.S. imports that surged 18.2% year over year in the July 1, 2019, to Nov. 30, 2019, period, which supplies holiday shipping demands.
Suppliers from China have started to lose out with a 6.7% slide in imports in the three months to Nov. 30, 2019, versus a 84.7% surge in imports from Mexico, though that partly reflects the impact of tariff-related stockpiling late in the 2018 season and earlier in 2019.
The importance of intellectual property in smart speakers is underlined by Sonos Inc. petition to the U.S. government to investigate alleged IP infractions by Alphabet. That came after U.S. seaborne imports associated with Sonos increased 13.6% year over year in the three months to Nov. 30, 2019. Sonos is also dealing with tariffs — China represented 84.1% of imports linked to the firm in the past year, with new supplies from Taiwan representing 14.2%.
LG Electronics leads growth as TVs get ever bigger at CES
The CES trade show has brought ever larger televisions, including a rollable screen from LG Electronics Inc., "The Wall" from Samsung Electronics and an 85-inch screen from Sony Corp.. The increased physical supply chain complexity associated with those devices comes as the firms also face volatility in the regulatory rules of trade policy.
U.S. imports from China became subject to tariffs at a 15.0% rate from September 2019, which will remain in place at a 7.5% rate for the foreseeable future even allowing for a phase one trade deal. Imports from China covered by tariffs fell 42.3% year over year in November 2019 as a result.
That's being replaced by a surge in shipments from Mexico, which represented 49.7% of imports in the three months to Nov. 30, 2019. The largest importers from Mexico in the 12 months to Nov. 30, 2019, were LG and Samsung with $4.09 billion apiece. LG led growth in November with a 27.8% surge versus Samsung's 3.6% rise.
2020 outlook: Ever-changing trade — 10 lessons from the past 10 years
The past decade has seen momentous changes in global supply chains. This report looks at 10 significant changes through the lens of Panjiva's trade and supply chain data and considers the implications for the coming years.
Total global trade saw a compound annual growth rate of 4.4% over the past 10 years, though that was flattered by the post-recession recovery.
China passed the U.S. as an international trader in dollar terms in January 2013 and is now just 0.2% smaller than the EU. China is still only the third-largest importer but its influence will likely grow.
The rise of populist politics has seen an increased growth in the use of tariffs, most notably in the U.S.-China trade war which led to a 13.7% year-over-year drop in imports of tariff-beset products in the 12 months to Nov. 30, 2019.
Trade deals don't last forever, as shown by the renegotiation of NAFTA and the Brexit process. British industry is already reacting to the latter with a decoupling of industrial intermediate products with 52.7% of imports coming from the EU in the 12 months to Oct. 31, 2019, versus 58.8% in 2009.
Supply chains have reacted to lower labor costs and tariffs by shifting to emerging Asia export markets. Vietnam has grown quickest with 16.1% compound annual growth in exports over the past 10 years, compared to 6.0% for the Philippines. Yet, that hasn't translated into faster GDP growth for Vietnam compared to the Philippines.
Industrial supply chains have also become more complex with a rise of 8.3% in the average number of suppliers per S&P 500 company.
Those supply chains are also exposed to shipping disruptions as shown by the 2015 West Coast U.S. port strike and the financial failure of Hanjin Shipping Co. Ltd. in 2016.
The latter has also driven further container-line consolidation — the top 10 container-lines now account for 87.4% of U.S. seaborne imports, up from 64.1% in 2009.
The largest industrial supply chains are also going through industry-specific upheavals. U.S. shale oil and gas production has meant U.S. imports fell to just 101% of exports in the past 12 months, compared to 471% at the start of the decade.
Finally, the automotive sector's cross-border operations have continued to explode. U.S. imports of parts from Mexico rose 13.4% annually in the past 10 years, while those from the EU climbed 9.4%.
S&P Global Market Intelligence is owned by S&P Global Inc.
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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