23-03-2018

BIMCO: A trade war is harmful to us all and clearly bad for global shipping

On 1 March 2018, the American President pushed through a metals tariff plan, that puts 25% tariff on imports of steel and a 10% tariff on imports of aluminium. They are set to enter into force on 23 March 2018.

The Trump administration seems positive towards protectionism and that picture unfortunately became clear when the pro-trade US President Donald Trump’s chief economic adviser Gary Cohn resigned on 6 March because of the tariffs imposed on steel and aluminium. The tariffs on steel and aluminium will have a limited impact on most international bulk trades. Nevertheless, they could trigger something bigger that would negatively impact global shipping in a much wider way including container shipping trades.

Since 2009, implementation of trade-restrictive measures amongst global trading partners has become more widespread according to World Trade Organisation (WTO). Fortunately, trade-facilitating measures have kept up well to limit some of the damage done. Just yesterday, the African Continental Free Trade Area (ACFTA) proved to be the latest of its kind. Above all, transparency and predictability in trade policy remain vital for all actors in the global economy as the WTO puts it.

BIMCO’s Chief Shipping Analyst Peter Sand comments: “Free trade provides prosperity and peace. It’s a fundamental principle to cherish and safeguard. All trade-restrictive measures are in principle bad for shipping.

Open economies are all better off from trading, as they make use of their resources in the most optimal way. The result of a trade war is more expensive goods of lower quality and little variety. This goes for all products and commodities.

Steel and aluminium tariffs may be ‘dish of the day’ and the impact on shipping is still unknown, but soon major trade action against China is also likely to come from the US. Despite the fact that there is good reason – violation of intellectual property rights – the result is the same. It is damaging for the involved countries.

The US is running large trade deficits with the EU as well as China. In addition to significant trade deficits in goods with Mexico, Japan and Canada. But starting a trade war is the wrong way to handle the situation.

Now what?

In a trade war, combatants retaliate against one another. While doing so, they often set aside normal business procedures.

As steel and aluminium import barriers are set by the US, trading partners like the EU, Japan and China, may set their own import barriers against e.g. agricultural products (soybean, corn, wheat) in general or more politically targeted products like the European Commission going for Kentucky bourbon, Harley-Davidson motorcycles and Levi’s jeans - all hitting Trump’s constituency.

The international atmosphere is full of threats of retaliation and it appears likely that major trading partners with the US like the EU and China will hit back to draw a line in the sand for the US Administration and President Trump.

Overall we are seeing more trade-restrictive measures introduced. Some more high profile than others. This is a worrying trend that limits demand for shipping globally.

Even worse for shipping could be short-sighted political positions that may have lasting consequences for everyone involved in global industries like shipping if a largescale trade war emerges”, Peter Sand concludes.

Source: BIMCO / Peter Sand

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