Game of Trade – Market Commentary
[London, June 2018] – Free trade has led to the significant expansion of shipping goods around the world. However, the current global trade wars could potentially harm not only local economies and international relations, but as a by-product, shipping. Trade patterns will change and some major ports will see reduced volumes. The thought process behind protectionist measures is to secure domestic livelihoods by bringing more manufacturing jobs back home, making local products cheaper in comparison to imported goods, thereby boosting countries’ economies, and cutting one’s trade deficit. However, the reality is, the raising of tariffs causes recipients of this type of import tax to retaliate. One of the main protagonists is President Donald Trump. In keeping with his campaign promise, Trump intends to impose a 25% tariff on $50Bn worth of Chinese goods, and in response China quickly announced its own tariffs on $35Bn worth of US goods (could potentially rise to $450Bn), for agricultural and industrial products. Trump also announced at 25% tariff on all steel imports and 10% on aluminium, in a bid to safeguard domestic production and security but which would also push the price up of local steel as demand increases. However, the US gets the majority of its steel from Canada and the EU, who have been the US’ most dependable allies. This has forced both the EU and Canada to react with their own protectionist measures with the EU imposing duties on €2.8Bn worth of US product such as bourbon whiskey, motorcycles and orange juice. Trump is now threatening a 20% tariff on EU cars! Indirectly, the US tariff on goods from China has meant other countries have had to re-evaluate their trade agreements with other countries. For example, Canada is preparing new measures to prevent a potential flood of steel imports from China and other global producers seeking to avoid US tariffs. Internally, China is also stocking up its war chest, with its central bank saying it would cut the amount of cash some banks must hold as reserves, releasing $108Bn in liquidity to stimulate lending to smaller firms. The upshot of some of these tariffs is the stronger relationships that are being forged between other nations. China and the EU, on common ground with the US, are looking at expanding trade between the two regions as China has said it will buy more of its farm produce from France and has hinted at future Airbus purchases (with Chicago based Boeing becoming an obvious casualty). China will also be looking to Brazil for it’s soybean requirements, with Brazil intending to increase production by 9.5M hectares over the next 10yrs. Brazil has also forged some new agreements with other Latin American countries, trading soybean for a series of other products. Price hikes in end products won’t just affect the countries evoking these tariffs, as it will become harder for companies around the world to operate thereby forcing them to push higher prices onto their customers. And from the US perspective, engaging in trade war will erase gains from tax benefits as the price of household goods goes up and businesses will be unable to reinvest tax savings in creating new jobs. [ June 2018, SPI Marine].