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No KO, just more beans after trade war round 13; Trump's Turkish steel stick

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.

Trade war knockout absent after round 13 as 5th beans-and-talks deal agreed
The 13th round of U.S.-China trade talks has resulted in a preliminary "phase one" deal that may be signed by President Donald Trump and President Xi Jinping at the Nov. 16 Asia-Pacific Economic Cooperation forum.

The U.S. committed to postponing tariff increases planned for mid-October and removing China's designation as a currency manipulator. China may buy up to $50 billion of agricultural products as well as affirming updated rules on technology transfer, access to the financial services sector and enhanced dispute settlement processes.

While representing an improvement in relations this is the fifth time a "commodity purchases and technical terms" type deal has been announced since July 2017. The agreement comes as the U.S. merchandise trade deficit with China fell 17.7% year over year in August to its lowest level for the month since 2014. This is one sign that tariffs are "working" on the Trump administration's basic metric, though the total U.S. goods-and-services deficit was unchanged in August after rising for five straight months.

U.S. imports of so-called list 1, 2 and 3 products fell by 15.0%, 50.6% and 33.6%, respectively, in August, indicating tariff pressure continued to affect supply chains. Yet, there is little sign of stockpiling in the consumer-goods focused lists 4A and 4B.

Chinese imports of U.S. agricultural goods covered by retaliatory duties reached just $8.3 billion in the 12 months to Aug. 31 — presumably part of the new $50 billion commitment. A 317% year-over-year rise in imports of those products in August suggests Chinese purchases are already being increased aggressively even before the new deal is signed.

Corporate supply chain reactions should become clear during the forthcoming third-quarter reporting season. It is worth noting U.S. price deflation from China reached 1.8% year over year in September, marking the lowest level of prices in absolute terms since June 2007 — tariff burden sharing is clearly alive and well.

(Panjiva Research - Policy)

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Trump's steel stick lacks leverage with Erdogan, may hurt Borusan
The Trump administration is reinstating elevated tariffs of 50% on Turkish steel exports in response to Turkey's military action in Syria. The leverage held by the U.S. is arguably limited given it accounted for just 6.3% of Turkey's steel exports in 2018 — the EU by contrast represented 43.2%.

The higher tariffs may also make little difference to the U.S. steel industry given Turkey represented just 1.5% of imports in the 12 months to Aug. 31 after an 87.1% decline.

Borusan Mannesmann Boru Sanayi ve Ticaret A.S. could be the largest corporate loser with shipments equivalent to 56.4% of total U.S. seaborne imports associated with the firm in the 12 months to Sept. 30. This follows a 26.1% increase compared to calendar 2016. Shipments associated with thyssenkrupp AG fell 98.0% over the same period.

(Panjiva Research - Metals & Mining)

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The sins of the father paid for in aerospace, steel tariffs
Political uncertainty surrounding Brexit may be increased by a new prorogation of Parliament. Assuming the Boris Johnson administration abides by existing laws there will nonetheless be an extension of the Brexit deadline at least until year-end. Whether the U.K. leaves the European Union and regardless of the form of that exit, the country's importers will continue to be bound by anti-dumping and retaliatory duties applied by other countries resulting from the actions of prior British — and foreign — administrations.

For example, the U.S. applied steel and aluminum tariffs — under the section 232 program as well three other cases — to $599 million of British steel exports in the 12 months to Aug. 31.

Furthermore, U.K. exporters have been caught in the EU-U.S. aerospace subsidy case. The U.S. will apply 25% duties to $2.25 billion of British exports — based on shipments in the 12 months to Aug. 31 — in retaliation for EU subsidies for Airbus SE.

The largest export line covered is whiskey, worth $1.75 billion. Based on Panjiva's seaborne shipping data for the 12 months to Sept. 30, the largest exporter from the U.K. was Diageo PLC with 31.2% of the total. That was followed by Pernod Ricard SA with 19.3% and Bacardi Ltd. with 15.8%.

The next biggest product line covered is self-propelled diggers, potentially including those shipped by JCB Earthmovers Ltd. as well as Hitachi Ltd. and Sandvik AB.

(Panjiva Research - Policy)

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Jaegermeister readies for tariff bomb dropped by Airbus subsidy case
The U.S. trade representative has released the list of products affected by a recently approved WTO ruling against the EU in a long-running fight over airplane subsidies. Panjiva analysis shows $9.27 billion of imports over a 12-month period to Aug. 31 are covered, mostly falling on France, Germany and the U.K.

Alcoholic beverages are the largest category of products targeted with $3.83 billion of products shipped, followed by aerospace at $3.13 billion as well as a wide range of food and capital goods products.

There is some evidence of stockpiling among the beverage manufacturers with imports by Mast-Jägermeister SE having surged 167.9% year over year in the third quarter. Others have followed a more modest approach with Southern Glazer's Wine and Spirits LLC shipments having risen by 11.1% and Diageo's whiskey imports up by just 5.4% year over year.

(Panjiva Research - Food & Beverages)

Xi, Modi talks may assist long-term fix for China's short-term export slide
Asia's international trade slowdown has continued in September. China's global exports fell 3.2% year over year, following a 1% drop in August. An 8.5% slump in imports marked a fifth straight decline and bodes ill for the rest of the region.

An attempt by China's government to reach a trade deal with India made some progress after a meeting between President Xi and Prime Minister Modi this week. That may reflect China's desire to offset a drop in exports to the U.S., which saw a 21.9% year-over-year slide in September. The Indian government will want to reduce China's trade surplus. Chinese exports in the 12 months to Sept. 30 have climbed 55.4% since calendar 2013 while its imports from India rose by just 7.7%.

A deal between India and China may also help the ailing Regional Comprehensive Economic Partnership trade deal. The latter is increasingly important given Asian exports fell 2.0% year over year in the three months to Aug. 31, while the five countries including China that reported September data have seen an average 3.7% slide.

(Panjiva Research - Policy)

Doosan revs up imports, Kubota has trade deal-driven opportunity
Construction equipment maker Doosan Infracore Co. Ltd. recently closed a five-year order to supply natural gas powered engines to Power Solutions International. That comes against the backdrop of a recovery in Doosan's seaborne exports to the U.S., which climbed 21.7% year over year in the third quarter. That was slightly slower than Kubota Corp. 34.2% expansion but well ahead of JCB's 12.7% decline.

The firms' varying supply chain structures may mean there is a further divergence ahead. Kubota is most focused with 79.3% of its U.S. imports shipped from Japan — making it a potential beneficiary of the new U.S.-Japan "mini-deal." Doosan sources 61.4% of its U.S. imports from South Korea. JCB faces Brexit challenges given 64.5% of its U.S. imports come from the U.K.

(Panjiva Research - Capital Goods)

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 5:30 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.