The trade war between the US and China has escalated once more with the US imposing a new 15% tariff on $300bn of Chinese consumer goods starting on 1st September.
Over the past year, the world’s two largest economies have imposed tariffs on billions of dollars worth of one another’s goods. Mr Trump believes that tariffs will correct the imbalance in the US trade deficit and protect American jobs.
Negotiations between the two superpowers have been ongoing but have proven difficult. While there have been some conciliatory gestures from both sides this week, US and China have not brought a resolution to their trade row much closer.
How do the new tariffs differ from previous tariffs?
It is American shoppers who will be hit the hardest by these new tariffs. Unlike previous rounds where the manufacturing sector bore the brunt of the impact, the fresh tariffs have been imposed on imports such as shoes, clothes, nappies and food. Smaller electronics such as smart speakers and Bluetooth headphones have also been taxed. Many retailers say they will have little choice but to pass on the cost to consumers.
In response, Beijing has begun to introduce measures targeting $75bn worth of US goods. The measures include a 5% tariff on US crude oil, the first time fuel has been hit in the trade battle between the world’s two largest economies.
In October, the US plans to raise an existing 25% tariff on some Chinese products to 30%. Washington then plans to deliver a wave of new tariffs on Chinese goods, ranging from footwear to smartphones, on 15 December, unless a breakthrough is reached. On the same date, China will roll out tariffs on around 3,000 more US products.
The original increase was planned for 1 October, however this week Mr Trump has said the 5% increase to duties will be postponed for two weeks as a “gesture of goodwill”. China has also released a list of 16 US imports that will be exempted from tariffs including animal feed and anti-cancer drugs.
The next round of tariffs on more clothes and big-ticket items like laptops and iPhones due in December is intended to help protect spending during the Christmas period.
By the end of the year, tariffs will be in place on almost all goods that the US buys every year from China. Analysts are predicting that this could add an additional $800 to the average US household’s annual spend.
What are the likely repercussions?
The tariffs already imposed and the uncertainty over the future of global trade caused by the dispute have prompted weaker economic conditions well beyond the US and China.
The trade war has weighed on the global economy over the past year and created uncertainty. Demand for global air cargo, an indicator of economic activity, has contracted over the last 9 months, according to data published recently by the International Air Transport Association (IATA). This decline has been directly attributed to the trade war and resulting uncertain global markets.
A key question will be whether the new tariffs scheduled for later this year will trigger a resumption of the front-loading of freight from China to the US that boosted markets in 2018?
As well as there being a big shock to the US economy, China and the US being the world’s biggest economies inevitably has had an impact beyond their borders. The concern created has resulted in more European companies operating in China considering relocating to Southeast Asia to avoid getting caught in the trade war crossfire.
What is expected is that without a clear way forward during an intensifying 2020 US presidential election, we see a rising risk that tariffs will remain in effect until the end of 2020. There is little sign that Mr Trump has any appetite to back down – despite the negative effects on the US economy – ahead of the 2020 election campaign.
How PFE Can help
The impact of the trade war may be far reaching, we will work with any of our customers affected to ensure the impact is clearly communicated.
If you are considering new manufacturing opportunities, PFE offers Sea Freight services from the whole of the Southeast Asian region including Vietnam, Thailand, Cambodia, Philippines, Malaysia, Singapore and Indonesia.
We also offer services for the US market including shipments from Southeast Asia to all major ports in the USA.
If you would like a non-committal quote for your shipment, please get in touch.