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Trade policy in Q2 2019: Traveling without moving

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.

Q2 2019 Trade Policy Outlook: Traveling without moving
A slowdown in global trade is being accompanied by glacial progress in six of the major trade negotiations identified in Panjiva's 2019 Outlook. One factor clouding various trade talks is Brexit, which remains in limbo until a third British parliamentary vote due next week. The country's no-deal deadline for leaving the EU has effectively been moved to April 12. The auto and apparel sectors are most exposed to any increases in tariffs applied by the EU.

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Ratification of the U.S.-Mexico-Canada Agreement appears unlikely before the summer. It is being held up in part by U.S. steel duties that have failed to prevent a 10.1% year-over-year rise in Mexican exports in January.

A U.S.-China trade deal looks less likely after U.S. President Donald Trump threatened to leave tariffs in place until China has proven it will deliver on its commitments. Meanwhile, the outcome of the trade war in terms of net exports turned in the U.S. favor in February, the first time since the trade tension began escalating.

U.S. trade deals with both the European Union and Japan are making slow progress. In the EU's case, there are seemingly intractable differences on the inclusion of agriculture. President Trump's threats to apply section 232 automotive duties — with a decision is due May 17 is a potent lever given EU auto exports are 6.5x U.S. exports.

U.S. negotiations with Japan has the added complication of a section 232 review of titanium sponge. Japan supplies 93% of U.S. imports and may be declared a national security risk.

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An RCEP trade deal in Asia which includes China, India, Japan and South Korea is unlikely to make much progress until year-end. That is despite slowing trade in most Asian countries, including a 4.7% year-over-year drop in Chinese exports in the first two months of 2019, an 8.3% slide in South Korea's and a 5.3% drop in Japan's.

(Panjiva Research - Outlook)

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General Motors extends its bet on Brazil as Mexico opportunity emerges
General Motors Co. will invest 10 billion reais in Brazil over the next five years. This is part of an extensive supply chain restructuring, which has led it to announce U.S. factory closures in November 2018. GM's Brazilian operations' combined imports and exports climbed 4.5% year over year in 2018, led by a 10.6% surge in imports. However, lower exports may be linked to weaker sales and could be helped by the recent launch of a Brazil-Mexico automotive free trade deal. GM's shipments from China to Brazil surged 27.4% and have displaced imports from South Korea and Mexico.

(Panjiva Research - Autos)

Solar power imports dim after tariffs, washing machines spin up
More than one year after the implementation of section 201 “safeguarding” tariffs on U.S. imports of solar panels and washing machines, both products have remained resilient. Solar power production in California set a new record on March 16 with capacity growth continuing despite a 21.1% year-over-year decline in seaborne imports of solar panels in the first two months of 2019. JinkoSolar Holding Co. Ltd. and Hanwha Corp.'s Q-Cells boosted supplies from near-zero a year ago and offset a drop in supplies by Trina Solar Ltd. and LONGi Green Energy Technology Co. Ltd.

For washing machine, imports increased 21.3%, led by a surge in shipments by LG Electronics Inc. after tariff reductions were allowed for its South Korean shipments. Samsung Electronics Co. Ltd. and Qingdao Haier Co. Ltd. also increased their imports with AB Electrolux (publ) being the outlier with a 30.4% slide.

(Panjiva Research - Policy)

Charleston's party near an end as Kent, Komatsu imports slide
Container handling through South Carolina's ports, centered on Charleston, climbed 5.8% year over year in February, outperforming both Norfolk, Va., and Houston. The growth was largely due to a 10.3% increase in imports, while a slide in exports is part of an established trend. The South Carolina port authority’s CEO, Jim Newsome, has flagged that there will be a downturn in handling due to an end of inventory-building relating to tariffs on Chinese imports.

That should prove manageable given China only accounted for 24.5% of inbound volumes in 2018. Major importers are already seeing a downturn though. Bicycle maker Kent International Inc.'s imports from China dropped 49.0% year over year in the first two months of 2019 while general-machine maker Komatsu Ltd.'s declined 7.9%.

(Panjiva Research - Logistics)

North beats south as West Coast port activity falls
Trade activity on the West Coast of North America is slowing. Container handling through the Washington seaports at Seattle and Tacoma fell 4.1% year over year in February, though that was in part due to lunar new year falling earlier that month. Handling in the first two months of 2019 increased 3.4%. Canada’s two big west coast ports also saw an increase in the first two months of the year, of 7.2% compared to a year earlier. Yet, the Californian ports experienced a 10.7% slump in handling in February and 5.1% in the first two months of the year. As a result total handling across the region fell 2.1% year over year in the first two months of 2019 and will be driven by the outcome of U.S.-China trade talks and an emerging widespread export downturn across Asia.

(Panjiva Research - Logistics)

Christopher Rogers is a senior researcher at Panjiva, which is part of S&P Global Market Intelligence. 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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