Supply chain players are bracing for the impact of a new round of tariffs recently announced by the United States against select Chinese imports, which could lead to more volatility and increased costs.
Various industry executives signalled that trans-Pacific cargo volumes and supply chain costs could come under pressure under U.S. President Joe Biden’s new US$18 billion tariffs and could lead to further diversification of sourcing origins.
Peter Sand, chief analyst at Xeneta, said the tariffs will add more red tape and complexity to supply chains as the industry faces market volatility and disruption caused by geopolitical tensions and economic uncertainties.
“The new tariffs under President Biden may be a case of history repeating. If so, businesses will be braced for increasing supply chain costs, and ultimately, it will be U.S. consumers who pay for it,” he said.
The newly announced tariffs – staggered between 2024 and 2026 – will be imposed on various Chinese imports, including semiconductors, batteries, electric vehicles (EVs) and solar cells. They also include the introduction of a 25% tariff on ship-to-shore cranes from China.
The new tariff would hit EVs hardest, with the levy set to quadruple to 100% when it is hiked later this year. Tariffs on EV lithium batteries will triple to 25% during the same period, and those on non-EV lithium batteries will increase in 2026.
Sand noted that the latest tariffs would further prompt businesses to consider alternative supply chain routes into the United States.
“We may see U.S. shippers look to import goods from nations such as Vietnam as an alternative to China, as has increasingly been the case since the 2018 tariffs hike hit the market,” the chief analyst at the shipping and airfreight data provider said.
“However, these are immature supply chain routes compared to the established trans-Pacific trade direct from China to the U.S. West Coast. This means more complexity, more volatility and increased cost.”
The Xeneta chief analyst also pointed out that demand for container shipping imports from China into Mexico in the first quarter of 2024 had already increased by 34% compared to 12 months ago, fueling suspicions some shippers are using it as a “back door into the U.S.”
“The ocean freight container market has seen incredible increases in demand from China into Mexico and the latest U.S. tariffs could see this rapid growth continue,” Sand said. “In a purely hypothetical scenario, at the current growth rate, by the year 2031, there will be more containers imported from China into Mexico than the U.S. West Coast.”
Daniel Hackett of Hackett Associates, an international maritime industry consulting research and advisory firm, told a media briefing that the new round of tariffs is “industry-focused” and “very targeted.”
“There will be, I think, short-term impacts on those sectors – a repeat of what we saw in late 2018,” he said, citing how businesses had to push forward their plans to import targeted products to avoid the tariffs.
“In terms of the cargo volumes, what we’ll see is a continued push of manufacturing out of China to other locations. We’ve seen this China Plus One strategy, so China is still the dominant import origin location, but we are seeing more imports coming in from Southeast Asia, among other places.”
“That is leading to different trade partners, different trade patterns occurring,” Hackett added, noting that China still accounts for 29% of all containerized imports by weight in 2023, although down 34-35% from its peak.
Gene Seroka, executive director of the Port of Los Angeles, said the impact on the volumes at North America’s busiest cargo hub would be minimal.
“I don’t see any real impact on the trade at the Port of Los Angeles as we speak because of this particular action that was announced,” he said. “But we’ll continue to see cargo transitioning to sourcing in Southeast and South Asia, Mexico becoming a bigger player.”
Seroka maintained, however, that from a container volume perspective, the Port of Los Angeles’s business with China still accounts for about 50% of all port work.
Niels Rasmussen, chief shipping analyst at BIMCO, one of the largest international shipping associations representing shipowners, said the impact of the new U.S. tariffs on shipping would be “residual.”
“The recent U.S. tariffs on Chinese goods are unlikely to have a significant direct impact on shipping,” he told Asia Cargo News. “For instance, although steel is covered by the sanctions and it is China’s largest dry bulk export to the U.S., it is small in volume, not even reaching 2 million tonnes in 2023.”
“The tariffs could, however, have an indirect effect on the market through their impact on the Chinese economy and by reducing Chinese import demand of raw materials used in manufacturing some manufactured goods covered by tariffs. However, we currently believe that this impact will likely be residual,” Rasmussen added.
Niki Frank, CEO of DHL Global Forwarding APAC, told Asia Cargo News that the staggered implementation of the new tariffs on Chinese imports to the U.S. would allow the market to adjust accordingly.
“The phased implementation of the tariffs on Chinese imports to the U.S. allows all stakeholders time to adjust and adapt. Trade regulations have always been a part of international trade,” he said.
Frank noted that the market could utilize technology and digital tools to navigate these developments. “Undoubtedly, global trade is experiencing a significant amount of volatility and uncertainty. However, a combination of digitalization and people can help adapt to any situation and minimize disruptions.”
Looking at the China-U.S. East Coast trade, Sand said the new tariffs would add more complications to the already strained route, which has seen average spot rates increase by more than 100% compared to 12 months ago.
“Ocean freight shipping routes from China to the U.S. East and Gulf Coast are still being hampered by restrictions in the Panama Canal. The next best alternative is the Suez Canal, but this isn’t an option either for the majority of shippers due to the conflict in the Red Sea,” he said. “More red tape and complexity in supply chains is the last thing the ocean freight shipping industry needs right now.”
The full extent of the impact of the new tariffs would depend on China’s response.
“There is no doubt this is an aggressive move by the U.S. against China and, once again, we are seeing geopolitics impact global supply chains,” Sand said.
“The new tariffs will affect around US$18 billion in annual imports, which is not a huge amount in the grand scheme of U.S. trade, but if China responds in the same way as in 2018, then we could be at the start of another spiral of escalating tariffs,” Sand added.
By Charlee C. Delavin
Asia Cargo News | Hong Kong
