No trade war winners with US and China set to see freight slump, DHL data shows

Date: Wednesday, July 10, 2019
Source: South China Morning Post

  • Tariffs are leading to slump in air and sea freight for key commodities, with the US and China both predicted to suffer a trade downturn as a result
  • Logistics company DHL examined freight volumes for early-cycle commodities such as bumpers for cars, touch screens for mobile devices and brand labels for clothes

As the United States and China sink deeper into their year-long tariff battle, they face a downturn in trade that suggests the dispute is continuing to weaken their economies.

Quarterly data from logistics company DHL, taken from sea and air cargo figures between March and June, found that Chinese trade was expected to contract slightly as a result of smaller sea freight volumes. Within that, imports were “losing significant momentum”, especially imports of basic raw materials, capital equipment and machinery, and consumer fashion goods.

These pointed to an underlying weakness in China’s industrial economy, which was reflected in official data. Industrial production grew by 5.0 per cent in May from a year earlier, the lowest reading since 2002. DHL data also showed a slump in Chinese consumption, which was also indicated by successive official import data releases.

The US trade outlook is worse: DHL expected a “significant downturn, driven by heavy losses in exports outlook”. Both air and ocean freight have fallen into negative territory over the past quarter, according to the study which found extreme weakness in basic raw materials, chemicals and high technology.

“The declining outlook for US exports indicates that, so far, the US is missing its goal of strengthening its export economy with a harsher trade course against China,” the report said.

The company’s Global Trade Barometer analysed the air and sea container freight for seven countries, which together accounted for more than 75 per cent of global trade. DHL’s focus fell on the early-cycle commodities that can act as warning signs for downturns – goods such as bumpers for cars, touch screens for mobile devices and brand labels for clothes. If sales of early-cycle commodities are down, it is likely to mean there will be lower demand for finished items.

The data is expressed as a figure, with a reading above 50 indicating a positive outlook over the three month period, and below 50 a negative. For the US, air trade fell from 53 in March to 45 in June, while sea trade fell from 57 to 43. In the case of China, air trade fell from 57 to 51 over the same period, while sea trade fell from 55 to 47.

The period studied covered May’s escalation of the trade war. Then, the US raised tariffs on US$200 billion of Chinese goods from 10 per cent to 25 per cent, while China retaliated with tariffs of up to 25 per cent on US$60 billion of Chinese goods.

While China’s exports in May rebounded slightly, according to official customs data, US-bound shipments dropped 3.7 per cent below the level of a year earlier, but that was well below the 13 per cent decline in April.

The figures suggested that neither side was “winning” the trade war, which was having a broadly negative effect on world trade. Multilateral institutions have pointed out the potential of the US-China rivalry to upend the global economy.

In June, Christine Lagarde, the International Monetary Fund’s managing director, warned that if US President Donald Trump was to make good on his threat to put tariffs on the remaining US$300 billion of Chinese exports not yet subject to sanctions, it would cut global growth by 0.5 per cent, or “a loss of about US$455 billion, larger than the size of South Africa's economy”.

The sentiment was echoed by multinational companies at hearings in Washington in June, when the Office of the United States Trade Representative (USTR) heard arguments against a proposed list of $300 billion of goods that would be subject to tariffs. That measure was postponed after a “truce” was reached by Chinese President Xi Jinping and his US counterpart after their summit meeting in Osaka, Japan on June 29.

“No one wins a trade war, and an escalating tariff fight will inflict immense damage on American businesses, workers and consumers,” said US tech giant Apple in a written submission to the USTR.

DHL’s barometer showed that the collateral damage caused by the trade war was widespread. Since March, the global reading for both air and sea trade has dipped into negative territory. Of the seven nations studied, measures for Germany, India, the United Kingdom and Japan remain above 50, meaning their trade outlook is stable or growing, albeit at a slower rate. Only the UK has experienced an acceleration in trade growth.

China, the US and South Korea have watched as their outlooks slipped into contractionary territory, while DHL’s figure for global trade sits at 48 – in negative territory.

Peter Levesque, chief executive of Hong Kong container terminal operator Modern Terminals, said that while this year’s volumes were down, it was difficult to say if that was a direct result of the trade war.

“South China is up 2 per cent, the Bohai Rim and the Yangtze River Delta [areas of China] are up about 4 or 5 per cent. So it is hard to say, with Hong Kong as a transshipment hub and all the different ins and outs, it is just hard to say,” he said.

China’s official trade data for June will be released on Friday, with the median forecast of a poll of analysts conducted by Bloomberg being a 1.7 per cent fall in exports and a 4.6 per cent drop in imports.


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