Trade With Asia: Uncertain Times

 

September 1, 2019

The effects of tariffs on Asian trade are most noticeable on the export side of the business, where West Coast ports have seen a steady decline in containerized exports to China. Photo courtesy of the Port of Portland.

For more than a year, trade with Asia has taken a series of interesting and rather dramatic turns, to say the least.

Disagreements between the US and China have led to an ongoing trade dispute that has seen the US imposing 25 percent tariffs on $250 billion of Chinese imports – with more being threatened – while China has levied tariffs on $110 billion worth of US products, including a number of agricultural goods, and lowered tariffs for countries that compete with the US.

While President Donald Trump and China's leader Xi Jinping agreed in late June to return to the negotiation table to continue trade talks, a resolution remained uncertain as of press time.

Meanwhile, the ongoing dispute has prompted west coast ports and shippers – many of whom consider China a top trading country and much of Asia as prominent partners – to adjust to the ever-changing landscape.

At the Port of Portland, for instance, officials there had to consider the tariff issue in its business pursuits.

"While we weren't involved in the steel import freight, it was kind of a target business for us for Terminal Six," Ken O'Hollaren, the port's director of marine marketing for the port, told PMM while on break at the Journal of Commerce TPM Conference in Long Beach last March. "One thing we were running up against in our marketing efforts was the tariff issue."


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Terminal 6 is the port's primary container terminal. Chinese steel and aluminum imports were among the commodities targeted by tariffs.

"There is an element to us not pursuing it even though we're not handling it," O'Hollaren said.

In her State of the Port presentation last June, Port of Vancouver USA CEO Julianna Marler spoke to attendees about how tariffs could affect one of its longtime customers, Subaru.

The auto manufacturer imports about 1.3 million vehicles through the Port of Vancouver and in 2018 moved a record 91,544 autos, Marler said.

The Trump Administration has been eyeing up to 25 percent in tariffs on foreign autos from Japan and countries in the European Union.

For now, however, that decision has been put on hold. Trump in May announced delaying a decision on foreign auto tariffs for six months while negotiators hammer out a contract.

Still, the port is watchful about any development.

"We are paying close attention to this as there is potential impact to the Subarus we import from Japan," Marler told the crowd.

Many ports saw record cargo volume numbers in 2018, a result in part of shippers rushing to move products before tariffs went into effect.

This year, however, some west coast ports are feeling the effects of the trade war.

For example, cargo numbers for June at the Port of Long Beach fell 10 percent from June 2018, which was the busiest month in the port's 108 years. Long Beach also saw May numbers down 16.6 percent from May 2018.

"The story we saw develop in 2018 was retailers forwarding goods to beat tariffs," Port of Long Beach Executive Director Mario Cordero said in July. "For 2019, it seems that the cargo is all here and warehouses are filled. That's disrupting container movement and the growth we would normally see this time of year."


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Outgoing Port of Oakland Executive Director Chris Lytle worried that barriers erected from the countries' dispute could "dry up his customers' access to a major export market."

"We remain concerned about the impact that tariffs will have on the health of our economy," the Executive Director wrote in June in a letter to US Trade Representative Robert Lighthizer. "To the extent that other countries are stepping in to provide goods that are exported by US businesses to China, the long-term potential for domestic companies to access one of the world's largest consumer markets will be severely hindered."


More than a third of Oakland's total trade volume is with China and US farm exports shipped from Oakland are especially vulnerable to Chinese tariffs, Lytle said in a letter to President Trump.

"The Port of Oakland continues to hear from our partners in the supply chain about specific impacts to their unique sectors," he wrote. "It's clear that the overall negative long-term potential impacts of these tariffs on the international movement of agricultural products, manufactured goods, household items and retail products is real."

He also urged the administration not to levy tariffs on Chinese-produced cargo-handling equipment, which would affect next year's delivery of three ship-to-shore cranes by Shanghai-based ZPMC to Oakland's biggest marine terminal.

"There is not a comparable domestic producer of ship-to-shore cranes," Lytle wrote. "Tariffs could severely impede and/or prevent our marine terminal partners from making the critical infrastructure investments needed to adapt to the changing international trade landscape."

For now, imports nationally continue upward, but not as much as they would because of tariffs, said Jock O'Connell, a California-based consultant whose work encompasses foreign trade logistics.

"The United States continues to rely upon China for lots of the goods that we consume, not only on the retail side but also the companies that import intermediate goods and institutional importers," he said. "There are few alternatives right now to Chinese manufacturers. We've set up these supply chains. We've come to rely upon certain manufacturers in China to produce a steady volume of goods. Right now, we're faced with the fact that those goods are facing higher tariffs than they were a year and a half ago."

The effects of tariffs on Asian trade – both by the US and China – are most noticeable on the export side of the business, where west coast ports are seeing a steady decline in containerized exports to China in the last 18 months, O'Connell said.

That trade uncertainty with China has benefited Southeast Asian countries such as Vietnam, which has seen an increase in US import business.

For example, Asian countries outside of China – such as Taiwan, Vietnam, South Korea and Japan – made up for most of the growth in Oakland agricultural exports such as rice, dried fruits, nuts and refrigerated beef, a result of US producers shifting away from China and its tariffs on US farm products, according to the port.

"The tariffs have accelerated a process that's been going on for some years," O'Connell said. "Manufacturers in China have been finding it more expensive to manufacture there. Wages have been up. It's no longer the low cost manufacturing center of the world, and so over the years companies have been migrating to other economies.

"So that trend had been going on for some time, but with the imposition of tariffs and the possibility that the tariffs aren't going to go away for at least another year, companies are rethinking their supply chain strategies and moving more of their manufacturing out of China to these other countries," he said.

The most notable beneficiary so far has been Vietnam, which shares a border with China.

Low cost consumer manufacturers in China have been increasingly moving to Southeast Asian countries, including Malaysia, Indonesia and to countries near the Indian Ocean, such as Bangladesh, India and Sri Lanka, O'Connell said.

Some Chinese manufacturers are going even further, setting up operations in East Africa, he added.

"They're going far afield to set up these manufacturing platforms to serve a global economy," O'Connell said.

And not just Chinese companies – US, Japanese, Taiwanese, South Korean and European companies that have built factories in China are also following the same pattern.

"They're rethinking it and turning back to say, 'OK, we can manufacture in China for the China market, but we can't any longer count on producing goods here in China. They will compete economically with goods that are produced in, say Bangladesh, if they're going for a third market, like trying to sell goods into the European Union."


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This is a critical time for west coast ports, O'Connell said.

"Where are these companies going to go?" he said. "Where is the manufacturing capacity going to move from China to?"

On the coast of Vietnam, he said, the goods will still largely be imported to the United States through west coast ports. If it goes around into the Indian Ocean, that's a different proposition.

"It's closer and more expeditious to move goods from places like Bangladesh or India to the US through the Suez Canal and then across the Mediterranean, across the Atlantic to the Eastern Gulf Coast ports," O'Connell said. "So to the extent that we see that dramatic migration of manufacturing industry moving away from East Asia into South Asia, that's a change in the routing and that would not be to the benefit of US west coast ports.

 
 

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