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China-US Trade: Front-Loading Bonanza May Not Last

Dec 7, 2018 12:13:34 PM / by Fauad Shariff

U.S. imports from China have steadily risen since President Trump announced a forthcoming 25% tariff on roughly $200 billion worth of Chinese goods this past July. According to Politico, Chinese export volumes spiked nearly 15% in September 2018 compared to the previous September. The prospect of tougher tariffs sparked worries about a steep decline in trade between countries affected by shifting sanctions. Yet, in the case of the U.S.-China riff, volumes today are stronger than before.

Chinese exporters, who were worried about impending tariffs initially set to take effect on New Year’s Day, have largely decided to “front-load” shipments. Front-loading is the practice of accelerating production and shipments ahead of a certain date for a given reason. In this case, the reason is tariffs: Chinese companies have picked up the pace of manufacturing and shipping, essentially speeding up the first and middle-miles of the China-U.S. supply chain, in order to get as many containers to the U.S. before tariffs on some 800 categories of goods kick in.

Read More: U.S. and China Trade: Take Advantage While the Getting's Good

And after meeting with Chinese president Xi Jinping at the G-20 summit earlier this month, President Trump agreed to delay the 25% tariff hike on Chinese goods for 90 days, effectively extending the front-load window on both sides.

All of this has been good news for end-of-year shipping totals. Along with seasonal peaks, the shipping industry is getting some more volume from the U.S.’s biggest single-country trade partner.

But the good times may not last much longer.

Negotiations are still ongoing, and the initial hostilities between the U.S. and China seemed to have cooled a bit. But the possibility of steep tariffs still exists. The White House announced that if negotiations aren’t completed during the 90-day extension, the new 25% hike policy will go into effect as originally planned.

Complicating matters is that the negotiation window runs right through Chinese New Year, a time when trade generally slows down for the holiday. And other geopolitical developments, such as the arrest in Canada of a senior Chinese corporate executive this week, further muddy the waters. These factors may severely limit the benefits of the reprieve offered by the extension.


Freight forwarders: Keep planning for the storm

What does this mean for freight professionals on both sides of the Pacific? Simply, the current calm in China-U.S. trade could be temporary. If you were already thinking about how to adjust your business to deal with new tariffs, don’t stop planning. While anything can change over the next 90 days, there’s no reason to believe the 25% hike is off.

Take as much volume as you can get between now and the end of February. Short-term opportunity is out there. But continue to develop your freight forwarding short-term business plans on parallel tracks: reap the benefits of short-term volume while planning for long-term viability. Here’s what you could do while we wait for updates from the latest round of negotiations:

  1. Explore new lanes to make up for trade volume you may lose if the tariff hike eventually takes place.
  2. Find a technology solution that will help you save time and effort looking new opportunities.
  3. Double down on customer service. Keep your customers in the loop, and make sure they know you have a strategy to guide you through uncertain times.

The storm might be a little further off, but it’s still looming. Don’t let current container volumes lull you into thinking the worst won’t happen. Take advantage of the surge, but be prepared for choppy waters ahead.


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Topics: Trade, China, tariffs, USA, Peak season

Written by Fauad Shariff

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