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The export roots of China's devaluation; tariff battle may catch US fish firms

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.

China's currency dip has roots in $6.4B net export swing
The U.S.-China trade war has spread to the foreign-exchange arena with a 2.2% depreciation in the yuan rate against the dollar, as at 7:00 a.m. ET on Aug. 6 versus Aug. 1. That’s likely linked to President Donald Trump’s threats of additional tariffs on Chinese goods on Aug. 2 and brings the total yuan devaluation since May 1 to 4.8%. The decline has led the U.S. Treasury Department to label China, which has managed its exchange rate trading bands for several years, as a currency manipulator.

The designation may have little impact in the short-term. The drop in the yuan is partly due to reduced net exports to the U.S. China's U.S. imports of products affected by tariffs fell 34.1% year over year in June, to $7.70 billion, while U.S. exports to China fell 16.1%, or $1.33 billion. The result is a $6.37 billion drop in China’s net exports, which is a driver of exchange rates, in June alone.

Computer circuit boards were the leading decliner in dollar terms in U.S. imports from China, which dropped 83.1%. There are signs of significant supply-chain switching to Taiwan and the Philippines although Panjiva’s seaborne shipping data shows that Hon Hai Precision Industry Co. Ltd. and Wistron Information Technology & Services Corp. are still importing such boards almost exclusively from China.

(Panjiva Research - Policy)

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Conagra, Silver Bay may be caught by China's latest tariff retaliation
China’s Ministry of Commerce will not offer tariff exemptions for imports of U.S. agricultural products, while "Chinese-related" companies will suspend purchases. That’s just one part of the escalation in non-tariff measures in the deteriorating trade relations between the two countries.

Exports of agricultural and food products to China from the U.S. fell 63.6% in the 12 months to June 30 from the prior-year period, to $5.90 billion. Major products, aside from soybeans, include $593 million of frozen fish exports and nuts worth $297 million.

Panjiva shipping data shows U.S. exporters of fish in the period include Conagra Brands Inc. and Silver Bay Seafoods LLC. China represented 17.9% of exports in the 12 months to end-June, while there has been minimal growth in shipments to other major markets, including Canada and the European Union.

(Panjiva Research - Agriculture)

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Venezuelan sanctions push has already crushed food, medicine imports
The U.S. government has widened sanctions against Venezuela, with the likely intent that almost all trade between the two will be choked off. Bilateral trade already fell 85.5% year over year in the second quarter as a result of the U.S. terminating oil imports from Venezuela in February.

The remaining exports to Venezuela have been focused on capital equipment to Petróleos de Venezuela SA. Sanctions will limit the state-owned oil company’s ability to rebuild its production capacity. They may also limit other countries’ willingness to deal with Venezuela. Total Venezuelan imports of food dropped 71.4% year over year in the first quarter, while imports of medicines fell 98.7%.

(Panjiva Research - Policy)

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North Korean denuclearization being dragged into trade war
The U.S-China trade war is spreading to other geopolitical situations with statements by China’s Ambassador to the UN, Zhang Jun, suggesting that the U.S. should not expect cooperation from China with regards to disarming North Korea while applying additional tariffs on Chinese exports.

China remains North Korea’s largest economic counterparty, with $2.54 billion of bilateral trade in the 12 months to end-June. China has applied sanctions strictly, though bilateral trade climbed 19.6% year over year in the second quarter. Exports reached their highest level in May since December 2017. An average $175 million of monthly trade surplus held by China with the country in the 12 months to June 30 raises questions over how trade is being financed.

(Panjiva Research - Policy)

Toyota profits, imports pull ahead with tariffs just around the corner
Toyota Motor Corp. reported an 8.7% year-over-year increase in operating profits in the second quarter, in large part due to a focus on sales of SUVs. Panjiva data, retrieved via Xpressfeed, shows that Toyota's U.S. seaborne imports rose 10.6% year over year in the three months to June 30, predominantly due to parts shipments to its U.S. assembly plants. Growth accelerated to 18.3% year over year in July, perhaps indicating a degree of stockpiling ahead of the risk of future automotive tariff increases.

By volume, imports are led by oil products, which represented 31.3% of the total in 2018, followed by batteries at 25.8% and auto components at 24.8%. Toyota is reliant on shipments from Japan, which represented 96.1% of the total in 2018. That leaves it exposed to trade negotiation between the U.S. and Japan, which may reach a conclusion as soon as Sept. 17.

(Panjiva Research - Autos)

ADM, Scoular corn shipments wilt, Ridley takes Mexican crown
The U.S corn harvest may be delayed by two to four weeks due to late planting, according to S&P Global Platts, pushing the harvest available for export into September. Exporters, including The DeLong Co., Inc. and The Scoular Company, already saw a 41.7% year-over-year drop in exports in the second quarter, Panjiva data shows.

A decline in exports to China was driven by tariffs while demand from Mexico fell 15.9%. The slowdown in shipments to Mexico was fastest for Archer-Daniels-Midland Co., whose Mexican imports fell 48.9%, while Scoular’s fell 51.8%. The outlier was Ridley Corp. Ltd. with a 2.3% increase, leaving it the largest importer with 22.8% of the total in the 12 months to end June.

Brazilian corn exports may be able to fill a U.S. shortfall, though exporters including Olam International Ltd. and Bunge Ltd. face their own challenges – 23.1% of Brazillian exports went to Iran in the 12 months to June 30.

(Panjiva Research - Agriculture)

S&P Global Platts and S&P Global Market Intelligence are part of 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.

The Supply Chain Daily has an editorial deadline of 7:30 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.