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.
New year, new frenemies: US trade policy in 2020
The Trump administration has already brought tumultuous change to U.S. trade policy since 2017. There's likely to be little let up in 2020 with nine major issues to consider.
First, the November elections may shine a spotlight on trade. There has been a 0.4% drop in exports to China in the 12 months to Oct. 31, 2019, for each one percentage point that Trump beat Clinton by in the 2016 elections. The situation will be particularly interesting for Florida and Wisconsin, which were +1% for Trump but have seen exports fall 35.8% and 20.4%, respectively.
The "phase one" trade deal with China won't necessarily lead to a more comprehensive "phase two" deal and will potentially degenerate into a form of decoupling. That's already underway with changes in corporate supply chains — imports of list three products fell 35.4% year over year in November 2019 — and U.S. restrictions on trade in technology including artificial intelligence software being implemented.
Third, the U.S.-Mexico-Canada Agreement, or USMCA, is moving from ratification to implementation. Autos and specifically steel use in that industry will be particularly impacted. Weak demand for cars and pre-positioning for the new rules may have driven a 24.5% year-over-year drop in automakers' seaborne imports of steel to the U.S. in the 12 months to Nov. 30, 2019, led by Ford Motor Co. and Toyota Motor Corp.
The most significant issue is a potential U.S.-EU trade war over digital services and carbon border taxes. Luxury goods have been the main loser so far and may continue to be so. Imports of beverages worth $11.7 billion lead the way with still robust growth of 6.1%, including LVMH Moët Hennessy - Louis Vuitton Société Européenne, Diageo PLC and Pernod Ricard SA.
A U.S. trade deal with the U.K. may stumble in the healthcare sector given popular support for the British National Health Service and the risks of conflicting regulations with a U.K.-EU deal. U.K. exporters will also want improved access to the U.S. after pharmaceutical exports from the U.K. to the U.S. fell by 10.3% and implants down 18.5% in the past 12 months, to the detriment of GlaxoSmithKline PLC and Smith & Nephew PLC, among others.
Sixth, a U.S.-Japan trade deal is meant to become more comprehensive this year. Japan's insistence on zeroing autos tariffs will be a major problem, as well as harmonization of USMCA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade deal terms given Canada and Mexico are in both. Japanese auto parts exports to Mexico are already in decline with a 12.1% year-over-year drop in the 12 months to Nov. 30, 2019, led by a drop in shipments by Nissan Motor Co. Ltd. and Mazda Motor Corp..
A brand new deal between India and the U.S. may focus on an early win of a handful of tariff reductions in India for farm products — particularly important for the Trump administration in an election year. The biggest wins in reducing the dollar value of tariffs could include cotton and nuts with tariff rates of 25% and 41%, respectively. India has, however, shown little desire to cut tariffs in its other trade negotiations.
The Trump administration may also turn its attention to the "mini Chinas" that have been winners from the U.S.-China trade war. The largest in dollar terms was Vietnam with a 24.8% surge in exports to the U.S. in the 12 months to Nov. 30, 2019, followed by Cambodia with a 36.8% expansion. That could lead to further section 301 tariffs — the mechanism used against China — or a wider Reciprocal Tariff Act. The risk alone has already led many Asian countries to use self-defense strategies such as cracking down on transshipments from China.
Finally, there are ongoing reviews of the Generalized System of Preferences, or GSP, access to reduced tariffs for emerging markets. The GSP covered $21.3 billion of U.S. imports in the 12 months to Oct. 31, 2019, after increasing 7.1% year over year. Thailand was most exposed with GSP representing 16.9% of its exports to the U.S., followed by Indonesia and Brazil.
Yara, Mosaic may have bigger Hormuz exposure in Brazil than Petrobras
New U.S. sanctions against Iranian exports of metals and other products, combined with a widening reluctance of commodity shippers such as Petróleo Brasileiro SA - Petrobras to navigate the Straits of Hormuz, may make life more complex for the Brazilian economy.
While the Middle East only represents 1.0% of Brazil's oil imports, in fertilizers the figure was 8.1% in the 12 months to Oct. 31, 2019. That follows a 21.6% year-over-year drop in fertilizer imports from the region resulting from earlier disruptions in the region.
Yara International ASA is more exposed than the average to fertilizer imports to Brazil from the Gulf region at 15.1% while Mosaic Co. was below average at 6.8%.
Terrible end to 2010s for marine logistics employment raises strike risks
U.S. logistics employment ended 2019 on a low note. Payroll growth of 1.0% year over year in December 2019 was the slowest rate since September 2010 including a 9.6% slump in rail due to the introduction of precision rail-roading efficiency measures.
Employment in the waterborne sector fell by 1.9%, with the level of employment being the lowest since June 2012. The U.S.-China trade war contributed to a 10.6% slide in U.S. seaborne imports in December.
As a result, the long-running improvement of productivity in the sector, equivalent to about 3 percentage points from 2011 to the third quarter of 2019, reversed to an 8 percentage-point drop in the fourth quarter. This means ports and shipping firms may consider headcount reductions. In turn, that could raise the risk of strikes and shipping disruption in 2020.
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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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