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.
Globalization alive and kicking: global trade policy trends in 2020
Global trade policy has faced upheaval at the hands of the U.S., but the rest of the world is still plodding on with the multiyear process of trade liberalization and dealmaking. There are eight regions to watch in 2020.
Aside from dealing with Brexit, the EU is negotiating deals with China, Mercosur, Australia, New Zealand, Mexico as well as implementing a new "trade enforcement" process to monitor existing deals. A revised deal with Mexico is close to completion after an agreement in principle was reached in 2018.
The largest potential Mexican export beneficiaries may be electronics exporters such as Samsung Electronics Co. Ltd. and LG Electronics Inc.. Mexico's exports of TVs and monitors represented just 0.1% of EU-bound exports versus 2.4% of exports to the rest of the world, ex NAFTA. Similarly, auto parts may benefit from liberalization in representing 4.5% of exports to the rest of the world versus 2.7% to the EU, potentially helping Nissan Motor Co. Ltd. and Volkswagen AG.
The No. 1 job for the United Kingdom will lie in securing a post-Brexit trade agreement with the EU, but it's unlikely to be anything more than a tariff-related deal given the short time frame involved.
A U.K. deal with the U.S. is next most important given it represented 16.2% of Britain's exports — though it will be controversial in terms of healthcare and agriculture. Deals with China and Japan, representing 5.8% and 2.5% of Britain's exports, respectively, will also be vital.
The Chinese government will look to build new trade deals to bolster export growth which slowed to 1.5% year over year in the 12 months to Oct. 31, 2019, excluding the U.S.
A deal with Mexico could be attractive but will run afoul of U.S.-Mexico-Canada Agreement rules.
India is likely to continue to be protectionist in general, though it may seek a trade deal with the U.S. — having failed to take advantage of the U.S.-China trade war. India's exports to the U.S. rose by just 5.7% versus 9.5% and 28.9% for Bangladesh and Vietnam, respectively.
More broadly in Asia, the RCEP trade deal is doing better than expected with the major economies well invested. The region was equivalent to 44.6% of Japan's exports and 29.6% of China's in the past 12 months to Nov. 30, 2019. Both are facing slowing exports but political issues such as Japan-South Korea relations and South China Sea claims will be stumbling blocks.
Latin America's biggest opportunity comes from the EU-Mercosur trade deal, though environmental policy is in the way despite declining trade between the two. The biggest challenges are intra-Mercosur frictions as well as the future of Venezuela. The latter's imports are recovering with a 422% year-over-year surge in the third quarter of 2019, resulting from higher food shipments from Mercosur and China, but they are still only a fraction of earlier levels.
The African Continental Free Trade Area provides one of the brightest opportunities for expanding trade. It came into effect in 2019 after intra-Africa trade between the southern and northern states, with those in central African states surging 14-fold in 2018.
Finally, resolving the future of the World Trade Organization's dispute system will likely prove intractable this year, though that won't prevent new filings or countries using parallel processes to resolve their differences. The key will lie with the EU and U.S. as the largest "users" of the WTO reaching a deal.
Miserable end to the 2010s as trade war, weak demand slash US imports
U.S. seaborne import activity ended the 2019 on a low point after shipments fell by 10.6% year over year in December. That meant the total for the year fell by 1.0%, the worst annual performance since 2009.
Trade with China was largely to blame with a 19.1% drop in shipments largely due to the impact of tariffs and the timing of pre-tariff stockpiling a year earlier. The decline in trade isn't just a China-specific issue though, with shipments from Taiwan, South Korea and India all in decline.
The drag to demand from tariffs and the higher cost of alternatives can be seen in both consumer and industrial goods. Total U.S. shipments of furniture fell by 20.3% while apparel dropped by 6.7% in December. Imports of metals and chemicals dropped by 19.9% and 16.4%, respectively. With industrial sentiment still largely negative and little sign of significant tariff roll-back from the "phase one" U.S.-China trade deal, the 2020s are starting under a cloud.
Consumer surge, new year hold keys to China's export rebound
China's international trade activity rebounded in December with an 11.3% year-over-year rise being the first improvement since May. The recovery may be linked to the earlier-than-usual lunar new year as well as weak exports linked to U.S. tariff expectations a year earlier.
Exports climbed 7.6% after falling by 1.1%, driven in large part by consumer goods. Exports of textiles/apparel climbed 8.6% after falling by 3.2% a month earlier, while furniture rose 17.1% after a 9.8% decline. A 7.7% rise in auto exports is somewhat curious given global auto sales are in decline.
Additionally, exports of products where the early trade data does not include product granularity accounted for much of the increase in dollar terms, raising concerns about the sustainability of the recovery.
Exports to the U.S. continued to decline with a 14.5% drop — potentially supporting the U.S. Treasury Department's decision to remove China's currency manipulator designation — while a 7.8% surge in imports bodes well for the signing of a phase one trade deal this week.
Superdry bails out of China sourcing as shipments sink
Clothing seller Superdry PLC has issued a profit warning, citing disappointing holiday season sales. While predominantly a European retailer, Superdry has also faced significant challenges in its U.S. operations. Panjiva data shows that imports to the U.S. associated with Superdry have fallen by 65.5% year over year in the 2019 fourth quarter.
Superdry's supply chain has also been disrupted by the U.S.-China trade war. The firm's CFO, Nichol Gresham, said it is "taking short-term and very remedial actions to stem the losses" resulting from earlier decisions to shift sourcing away from Turkey and into China.
The firm had previously shifted sourcing from both countries to a focus on China in early 2018. It has since reversed that, with an increase in U.S. seaborne imports from Turkey of 300% year over year back alongside an 87.3% decrease in imports from China in the 2019 fourth quarter.
Gazprom, Kinder Morgan at opposite ends of EU-US common gas interests
Panjiva Research took part in a seminar last week which considered the future of Europe's gas supplies. Public Joint Stock Company Gazprom's new gas transit deal with Ukraine's Naftogazvydobuvannia Private Joint-Stock Co. should reduce gas supply risks across the EU through 2024. The deal followed moves by the U.S. to apply sanctions against companies involved with Gazprom's Nordstream 2 pipeline which would bypass Ukraine, leading Allseas to halt construction of the project.
The move may also help improve the attraction of U.S. liquefied natural gas to European buyers from a security perspective, possibly as part of a wider development in U.S.-EU trade relations. So far, the U.S. only represented 4.1% of EU gas imports in the 12 months to Oct. 31, 2019, compared to Russia's 31.0%.
The EU is already a major customer for U.S. exporters including Cheniere Energy Inc. and Sempra Energy, representing 46.0% of U.S. exports in the 12 months to Nov. 30. Aside from the sanctions action, the Trump administration also approved the National Environmental Policy Act which will cut regulations for building new pipelines in the U.S.
The latter move should improve the viability of new projects held by Kinder Morgan Inc., among others, which could add 121% to U.S. exports in the next two years. Finally, increased sales to Europe would reduce the need for the U.S. to rely on China for future gas export growth no matter the outcome of the forthcoming phase one trade deal.
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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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