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U.S.-China Trade War of 2019 Spills into 2020 for Ports, Shippers and Manufacturers

U.S.-China

U.S.-China Trade War of 2019 Spills into 2020 for Ports, Shippers and Manufacturers

The Jan. 15 signing of a U.S.-China Phase One agreement did spawn a sigh of relief among those troubled by the trade tensions between the two nations. But six days later, a warning came from a couple experts closely watching the unfolding events on behalf of ports, shipping lines and manufacturers. The crux of that warning? Stay tuned.

“This is a truce,” said Phil Levy, chief economist at Flexport, a San Francisco-based freight forwarding and custom brokerage company. “This is not the end of the trade war.”

Levy shared that opinion as he joined his company’s CEO Ryan Peterson in leading a webinar on Jan. 21 that was listened in on electronically by some of their 10,000 clients in more than 200 countries. Those who rely on the company’s expertise in ocean, air, truck and rail freight, drayage & cartage, warehousing, customs brokerage, financing and insurance–all informed and powered by Flexport’s unique software platform—heard Levy say of the U.S.-China trade war: “We haven’t seen a retaliatory escalation of this magnitude in the post-World War II era. … This really was a 2019 story that worsened throughout the year.”

He pointed to a graphic that showed trade between the world’s two biggest economies fell markedly last year, and that no one overseeing trans-Pacific supply chains were immune from economic harm. Many webinar participants could relate as 64 percent of Flexport’s customers rely on the trans-Pacific trade routes, according to Peterson.

Yes, the Phase One deal was a positive first step, but Levy pointed to some examples of lasting victims from the trade war. It exposed the continued “decay,” as the economist put it, of the World Trade Organization (WTO), which is supposed to prevent the escalation of trade disputes. The “keeper of peace” amid trade tensions was largely frozen out of U.S.-China talks and, therefore, silent as events transpired.

A second heavy blow came in December 2019, when the WTO’s appellate body ceased to function, according to Levy, who noted that the formation of the “WTO system was one of core achievements since World War II.”

Peterson found equally worrisome the first-ever disappearance of peak season when it comes to shipping. As many known, imports grow during the fall and really heat up by November’s holiday shopping season. That not happening in 2019, couple with a steady decline is U.S. imports from China after years of solid growth, is a reason for concern, according to the CEO, who maintained, “global trade is down due to tariffs.”

For one thing, not having a peak season to rely on, coupled with steadily declining trade, “from our perspective makes life very hard to plan for,” Peterson said.

He did see on the horizon what many may view as a green lining: lower freight fees and consumer prices. “Lower prices do sound good,” Peterson conceded, “until someone goes bankrupt. We want stability, predictability. Things getting too cheap is unpredictable. You are playing with fire.”

Feel the burn? Peterson called our current “degree of uncertainty relatively unprecedented. We learn about things in a tweet. Was that really implemented or not?” As an example, he cited France proposing a digital tax and President Donald Trump striking back with threats of tariffs on cheese and wine. “Is that policy or not?” Peterson asked rhetorically. “Right now it’s a tweet. It makes it very hard to plan for.”

Levy warned “there is no safe play.” You can withstand the brunt of the tariffs and see what that does to your bottom line, or you can figure out a way to work around them and then have a trade deal come along with no way to return to normal operations quickly enough.

As Peterson pointed out, it’s not just the sting of the tariffs but the amount of paperwork and other adjustments one must handle while trying to remain agile. That time takes away from other things you need to be doing with your business.

Speaking of time away, Levy believes there will be no further movement in deescalating trade tensions between the U.S. and China until after America’s November presidential election. He suspects that China agreed to the Phase One conditions, which were much more weighted against that country than the U.S., “to buy a year of peace.” He added that China could be playing it coy in the weeks ahead as Beijing awaits the outcome that determines whether they will continue to deal with Trump or a new White House occupant. “If Trump loses, it’s likely the trade agreement will change anyway,” Levy said.

In the meantime … uncertainty. Peterson noted that one Flexport client had to close a manufacturing plant due to the tariffs. Levy held onto the hope that an eventual U.S.-China trade deal will be beneficial economically, pointing to markets that opened up with the U.S.-Mexico-Canada Agreement replacing the North American Free Trade Agreement. But you never know, as evidenced by USMCA having also resulted in some restricted trade, particularly in the automobile sector. “That was disappointing,” he admitted.

Don’t be surprised if the pain ultimately spreads, as Levy predicted what will happen after the U.S.-China trade war comes to a head. “There are a lot of signs the president will turn his trade policy focus away from China and toward Europe,” said Levy, who later noted Trump has also begun accusing Vietnam of cheating when it comes to trade.

So what to do about all this?

“My stance is there is nothing more important than agility, the ability to adapt,” Peterson said of dealing with tariffs, real or threatened. “It can mean restructuring a supply chain or seeking exemptions.” Companies that foster a culture with an ability to adapt can look at these challenges, Peterson says, and respond: “Bring it on, bring on the change.”

China

Amid US-China Trade Battle, Here is how America can Remain the World’s Strongest Economy

The Communist Party of China has laid plans for a century of unlimited Chinese power and, with it, the end of the American era. However, we still can — and must — bet big on the future of American economic power. The best antidote to China’s ambitions is to ensure America’s continued economic and technological preeminence.

Far too many strategists, investors, and policymakers accept China’s economic preeminence as an inevitable outcome, given the country’s enormous population and potential for growth.

As the business community looks toward a “partial trade deal” to unwind tariffs and reduce trade hostility between the world’s two largest economies, we must understand that non-negotiable problems in U.S.-China relations will accelerate if China closes the gap with the United States in terms of economic and technological power. With the right strategic mindset and a focus on domestic productivity, America can not only win the economic and technological contest but also turn the tide in the U.S.-China competition for global power.

China’s bid for global power is built on its economic ascendency, which is based on engagement with the United States and our allies. Chinese companies are capturing global markets and climbing the ranks of the Fortune Global 500 by taking advantage of stolen or coerced foreign intellectual property and state-orchestrated market distortions. The Communist Party is converting China’s technological power into a dystopian surveillance state and a military that is focusing its capabilities on the United States and our partners.

Chairman Xi Jinping calls regularly for Chinese forces to “prepare to fight and win wars,” while converting civilian industrial technology into military power through “civil-military fusion.” Meanwhile, China’s current account surplus is employed for global influence, buying “strategic partners” with intercontinental projects like the “Belt and Road Initiative” and state-backed acquisitions of foreign firms.

U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives.

The People’s Republic of China is a challenge to America’s values and concept of world order. U.S.-China competition is likely to be the hardest geopolitical contest in generations — but it is a contest that the United States can win if we focus on the right objectives. So, where do we go from here?

Focus on GDP

The first step must be a focus on accelerating U.S. productivity growth. U.S. productivity growth need only increase from 1.3 percent a year to 2.5 percent for U.S. GDP to remain ahead of China’s for the entirety of the 2020s, the decade in which many expect China’s economy to surpass America’s.

By 2030, economic leadership will be easier to maintain as China’s demographic problems set in. Such a productivity increase is realistic, given that productivity growth from 1995 to 2008 was higher than 2.5 percent.

Protect America’s edge

The second step is to preserve our edge in advanced and emerging technologies. America must remain ahead of Communist China, not only in hard sciences, but also in the actual production of advanced goods and services.

If America competes against China only through soybean and oil production, we will fail to counter China in advanced industries such as robotics, semiconductors, aerospace and biopharmaceuticals. China is gaining in these and other technologies and industries and could eventually have a decisive advantage over the United States.

As Alexander Hamilton warned 200 years ago, America can’t be great if it is a “hewer of wood and drawer of water.” We must out-invent and outproduce China in advanced technology and industrial goods.

Maintaining U.S. advantage will require collaboration between government and corporations towards national goals in science, engineering and industry. This approach has long served our nation in times of international struggle and led to lasting commercial and national security breakthroughs.

New and Big

In order to attain these goals, Washington must think new and big. New in the sense of a bipartisan consensus that productivity growth and technological competitiveness must be national priorities.

Big in the sense of big and bold proposals. Here are three: First, implement a robust research, development and investment tax credit that will stimulate innovation and investment on American soil. Second, establish a series of well-funded “moonshot” goals to ensure American leadership in emerging industries such as advanced robotics and quantum computing. Third, develop a national productivity strategy that will take the best ideas of government and industry and focus on building the next $10 trillion in annual U.S. GDP by 2030.

Half a century ago, under the leadership of President John F. Kennedy, America faced a Communist superpower that believed that it would “bury” the United States, much as Chinese Communist leaders today believe that the 21st century belongs to China. Kennedy reminded us then that America would “bear any burden” and “meet any hardship” to prevail in that consequential time.

In the end, it was the power of the American economy, the power of American technology, and the power of American industry that brought victory over our ambitious foe. We must unleash these forces once again, wrestle them into national service, and build on toward the greater good — an American era that can and must prevail.

__________________________________________________________________

Dr. Jonathan D.T. Ward is the author of “China’s Vision of Victory” and founder of Atlas Organization, a strategy consultancy on US-China global competition. Follow him on Twitter @jonathandtward

Dr. Robert D. Atkinson is the president of the Information Technology and Innovation Foundation and the author of “Big is Beautiful: Debunking the Mythology of Small Business.” Follow him on Twitter @robatkinsonITIF..

This article originally appeared on FoxBusiness.com. Republished with permission. 

As sales of U.S. soybeans to China plunge amid trade dispute, exporters need a new strategy to access international markets

Trade tensions between the United States and China are being felt across America’s heartland.

Prices for soybeans have tumbled and stockpiles are growing with the harvest nearly complete because exports to China, the largest foreign destination for U.S. soybeans, have plummeted. The latest federal data, through Oct. 25, shows American soybean sales to China have declined by 97 percent from last year’s harvest.

In response to U.S. tariffs placed on billions of dollars of Chinese goods, China imposed a 25 percent tariff on U.S. soybeans and shifted to buying soybeans from Brazil and other countries. Since tariffs were announced in June, the going rate of U.S. soybeans has fallen from roughly $10.50 a bushel to $8.34, as of Oct. 30, according to Markets Insider.

The timing of the trade dispute couldn’t be worse for American farmers. The USDA has forecasted that U.S. soybean production in 2018 harvest would rise to an all-time high of 4.6 billion bushels, up from 4.4 billion bushels a year earlier. The federal estimate for Illinois, the top-producing state, shows an increase of 12.4 percent to 688 million bushels.

While farmers hope for a new trade deal, there is urgency to find alternative markets for the oilseed. One of the keys to diversifying the U.S. export market lies in a 20-foot-long steel box.

Shipping containers dominate international trade. Yet, they are not widely used in U.S. agricultural exports. The movement of soybeans in 20-foot or 40-foot-long containers has represented 5 to 7 percent of total U.S. soybean exports in recent years. Bulk ocean vessels and rail to markets in Canada and Mexico are the current primary transportation methods.

But to enter new markets, smaller shipments will be needed, and container shipping is the solution. It offers several advantages over bulk vessels, including:

-Soybeans shipped in containers are generally higher in quality because they are handled less, reducing the amount of split and broken soybeans and foreign materials.

-Smaller importers can buy the measured quantities they demand, ordering soybeans only when they need them, as opposed to taking positions for large deliveries on bulk shipping vessels. “Just-in-time” inventory management, popularized by the Japanese and now prevalent throughout manufacturing, cuts costs and reduces waste.

-In the event there are logistical problems, the demurrage for containers is much lower than that of entire vessels, thereby minimizing the overall financial risk.

-Buyers seeking high-value or specialty soybean products can buy direct from smaller exporters. Importers in Japan use containers, for instance, to preserve food-grade soybeans.

-Customers can have their orders fulfilled much quicker. Three to four weeks is the typical turnaround time for the container shipping to Asia, compared with three to four months via the bulk vessel channel.

U.S. soybean exporters have been able to nurture markets in Taiwan and Indonesia by shipping in containers. Indonesia is now one of the largest importers of soybeans. In addition to producing animal feed, Indonesia uses soybeans to make foods such as tofu and tempeh.

Thailand, Vietnam and other countries in Southeast Asia are also using more soybeans as household incomes grow. Income growth leads more meat consumption, which in turn fuels demand for soybean-based animal feed.

Smaller international markets in Asia, Europe and Africa are perfect for container shipping because they haven’t achieved the economies of scale required to use the bulk transportation system.

Shipping by container also will help solve a major problem in the logistics industry. More than 11 million maritime containers arrive at U.S. ports each year. Most of those are coming from Asia, containing televisions, furniture, sneakers and other manufactured goods. But the imbalance of trade between Asia and the U.S. means about half of those are returning empty.

All this empty space on ships is a multi-billion-dollar loss for shipping companies, exporters and importers. Soybeans and other grains can take advantage of backhauling opportunities for ocean carriers repositioning empty containers.

Momentum to ship soybeans by container is growing. Soybeans loaded into containers in Illinois reached a new high of 66 million bushels in the 2017-18 marketing year ended Aug. 30, according to Informa Economics IEG.

But that represents about 10 percent of soybean production in Illinois, so there is a lot of room for growth. Illinois is the nation’s top producer of soybeans, is close to a sizeable supply of available containers and has several major railroads converging in the Chicago area.

The American economy depends on the exporting of soybeans and other crops. Even if China lifts the tariffs on soybeans, the trade standoff has sharply illustrated the need to cultivate new markets. Shipping by container can help lead the way.

Eric Woodie is a trade analyst with the Illinois Soybean Association’s Checkoff Program, and has over a decade of experience in export trade, foreign markets, and inland logistics.