By John D. Schultz / www.logisticsmgmt.com / September 20th, 2019
It’s probably a pyrrhic victory, but transport interests recently gained a small victory in President Donald Trump’s growing trade war with China.
The Office of the U.S. Trade Representative recently ruled that 53-foot domestic containers from China have been exempt from the punishing tariff war between the world’s two largest economies.
That’s the containers themselves—not actually what’s in the boxes.
Trucking industry analysts were sanguine about the ruling, basically calling it a drop in the bucket in the waterfall that is becoming the trade war.
“The cardboard box has never been the target of tariffs--it’s the shoes that are in the box that matters,” Donald Broughton, principal of Broughton Capital, which closely tracks the trucking industry.
Besides being virtually unenforceable, any proposed tariff on containers was estimated to have cost the logistics industry upward of $750 million over 10 years.
But exactly who would have paid that tax is unclear. First, containers are virtually indestructible and can last decades. There are no large U.S.-based domestic container manufacturers so the effect of placing tariffs on foreign containers was unclear. And actually finding the containers and their rightful owner would have been a logistical nightmare, experts say.
“Even if you are buying the containers, they’re not staying anywhere,” analyst Broughton told LM.
Broughton said if he owned a company that was subject to a container tariff, he would simply establish what is called a “duty drawback” and re-exported the container to another country.
Meanwhile, effects of the China-U.S tariff war continue to be felt within the domestic trucking and maritime industries and elsewhere. And signs they were having at least some effect on the health of the U.S. economy are abundant.
The Institute of Supply Management key manufacturing indicator, the PMI fell to 49.1% in August (a reading of 50 or higher indicates growth), from 51.2% in July and 59.5% last September. Indexes for employment and new export orders fell even more. Business investment fell 6.1% in the second quarter—the biggest decline since the first quarter of 2011.
Such precipitous drops are not surprising when the world’s two largest economies and trade exporters are tangling over tariffs, experts said.
“China is world’s largest exporter and the United States is second largest,” Broughton explained. “If the world’s second largest economy is hurt because of what we buy from them, that hurts us as well. You hurt your own customers when you hurt your own economy.”
A J.P. Morgan study estimates Trump’s tariffs will cost the average U.S. household $1,000 a year. But that study was done before Trump raised the Sept. 1 and Dec. 15 tariffs to 15% from 10%.
The 15% U.S. taxes apply to about $112 billion of Chinese imports. All told, more than two-thirds of the consumer goods the United States imports from China now face higher taxes. Some 87% of textiles and clothing the United States buys from China and 52% of shoes is now subject to import taxes.
Trump also has threatened that current 25% tariffs on a separate group of $250 billion of Chinese imports will increase to 30% on Oct. 1. At press time, it was unclear whether or when those tariffs would increase after Trump said he was delaying them until mid-October.
On Dec. 15, the Trump administration is scheduled to impose a second round of 15% tariffs — this time on roughly $160 billion of imports. China has indicated that if those duties take effect, it will retaliate with additional tariffs on $75 billion of American goods.
Tentative U.S.-China trade talks were scheduled for late September, but it was unclear at press time whether those would take place. “We’ll see what happens,” Trump told reporters recently. “But we can’t allow China to rip us off anymore as a country.”
“It’s a good thing taking on China. Unfortunately, he’s done it the wrong way,” said AFL-CIO President Richard Trumka said recently on “Fox News Sunday.” Trumka and other officials favor a more multilateral approach to dealing with China.
One country, even with an economy as large as the United States, is incapable of effectively challenging China on its overcapacity because the Chinese have other global options in Asia, Europe and the developing nations of Africa, experts said.
Trump has insisted that China itself pays the tariffs. But that’s as big a whopper as Mexico paying for his border wall. In fact, economists say research has concluded that the costs of the duties fall on U.S. businesses and consumers.
“Tariffs are nothing but a highly regressive tax,” Broughton said.
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