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.
War and peace and war — two years of U.S.-China trade conflict
Last week saw the U.S.-China trade war's second anniversary, with the first shot seen as the U.S. section 301 trade review of China's intellectual property practices, launched Aug. 21, 2017. The U.S. trade deficit with China had reached $355.6 billion in the 12 months to June 30, 2017. This report outlines nearly 50 events in seven phases — including an outlook to the end of 2019 — that have defined the trade conflict. The U.S. trade deficit reached $405.4 billion in the 12 months to June 30, 2019.
The most recent phase saw talks between President Xi Jinping and President Donald Trump on July 1 result in a third ceasefire in tariff increases, and Chinese commitments to buy more agricultural products. The ceasefire ended by mid-August with Trump saying duties will apply to all Chinese exports starting Sept. 1, with further measures from Dec. 15.
On Aug. 23, the Chinese government announced tariff increases from 5% to 10% on 5,078 products, to launch in two phases on Sept. 1 and Dec. 15. Products facing extra tariffs on Sept. 1 include soybeans, worth $3.20 billion in the 12 months to June 30, crude oil worth $2.55 billion and pharmaceuticals worth $1.16 billion. The products in the Sept. 1 group may have been chosen for their recent recovery — U.S. exports in that group fell by just 15.2% year over year in Q2 compared to 20.4% for the Dec. 15 round.
Looking ahead there may be few opportunities for de-escalation. Trump has already ordered a 5% increase in all existing and future tariffs and is considering restricting U.S. companies' investment in China. Congress may also take tariff- and non-tariff related actions after Labor Day and relations with China will remain in focus during the election process.
The UN General Assembly from Sept. 23 could be the last opportunity for Xi and Trump and sign a deal before year end. The 70th anniversary of the People's Republic of China on Oct. 1, 2019 may mean the Chinese government is in no mood to compromise later in the year.
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Two become one as DSV absorbs Panalpina with added scale, unchanged risks
DSV A/S has completed its acquisition of fellow freight forwarder Panalpina Welttransport (Holding) AG. DSV expects cost cutting equivalent to around one-quarter of the combined group's EBITDA as a result of the transaction. Scale has been a big deal driver — combined the two would have been the third largest handler of U.S.-inbound, seaborne freight in the 12 months to July 31.
DSV has grown more quickly than Panalpina during the deal's progress, with revenue rising 3.0% year over year in Q2 versus Panalpina's 1.6% decline. DSV's U.S. seaborne imports rose 12.3% in Q2 and a further 18.2% in July while Panalpina fell 4.7% and 15.8% over the two time periods, respectively.
The two firms have a similar geographic exposure on U.S.-inbound routes, with China representing 31.6% of volumes and Europe 41.9%. There's therefore little change in the combined groups' trade policy risk profiles.
(Panjiva Research - Logistics)
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Trump, Abe agree corn deal that may be a red herring
President Trump and Prime Minister Shinzo Abe have announced a framework trade deal between the U.S. and Japan which will be focused on the agriculture sector, industrial duties and e-commerce. The status of the automotive sector — where U.S. imports from Japan reached $56.7 billion in the 12 months to June 30 and where duties may be applied from November — is unclear.
The passage of the deal and its structure will likely go hand-in-hand. The agreement needs to be comprehensive to avoid falling foul of World Trade Organization rules but cannot be too wide-ranging otherwise it will need approval from U.S. Congress. U.S. corn exports could increase.
U.S. corn exports by companies including The DeLong Co., Inc. and The Scoular Company have already risen by 32.4% year over year to reach $2.86 billion in the 12 months to June 30, Panjiva's data shows. Shipments to China have fallen to $39 million from $152 million in 2017 and the past 12 months.
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Mastronardi and NS grow tomato shipments while Commerce snips others
The U.S. Commerce Department has reinstated a long-term suspension of tariff investigations into Mexican tomato imports following a breakdown in such arrangements in May. The suspension may hurt prospects for passage of the U.S.-Mexico-Canada Agreement where there have been calls from Congress for tighter rules on seasonal produce imports.
The reapplication of tariffs in May at a rate of 25% had a rapid impact on imports which dropped 21.5% year over year in May and by 19.2% in June. Yet, not all buyers of Mexican tomatoes in the U.S. have cut back with NS Brands up 33.2% year over year in the second quarter, while imports by Mastronardi Produce Ltd. were up 38.6%. Both have continued their growth in July.
(Panjiva Research - Agriculture)
Surfboard makers ride tariff wave out of China
Surfboard makers including Southern California Sports Industries and Dewey Weber have started restructuring their supply chains in response to U.S. imports from China where 15% tariffs are due from Sept. 1.
Total U.S. imports of surfboards grew 10.1% year over year in the 12 months to June 30 to reach $68 million. While imports from China represented 68.8% of seaborne shipments in the 12 months to July 31 there's already been a 7.6% year over year decline in the three months to July 31. Instead imports from Taiwan have surged, rising 23.4% over the same period.
(Panjiva Research - Consumer Durables)
Global trade decline confirmed in June, evidence suggests more of the same in July
Global trade activity fell 1.4% year over year in June according to the CPB World Monitor, driven by a drop in exports from the U.S. and the EU. The situation in July may not have been much better with 11 out of 19 countries that have reported data showing a decline in exports compared to a year earlier.
While that's a lower ratio than in June some of the bright spots — e.g. the growth in exports from Thailand and Switzerland — were down to improved gold prices. Similarly the 3.3% increase in exports from China may well reverse given the latest round of tariff increases between the U.S. and China.
(Panjiva Research - Economics)
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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