At the G20 Summit in Argentina, a huge announcement was made – a “pause” was put on the ongoing trade war between China and the United States.
The big concession by the Chinese government is that they will reduce the existing 40% tariff on automobiles and, potentially, remove it. According to Economic Advisor to the President, Larry Kudlow, “We expect those tariffs to go to zero.”
This latest act of the on-going drama between the administration of Donald Trump and the Chinese Government of Xi Jinping has brought about a collective sigh of relief from markets and the public at large.
Here’s a timeline of how we got to this point:
- January: Initial “Safeguard Tariffs” on washing machines and solar panels are imposed to the tune of nearly $10 billion
- February: China investigates its first response to Trump’s tariffs – $1 billion on US exports of Sorghum
- March: US imposes a 25% tariff on steel imports and 10% on aluminum imports
- April: China imposes a 15-25% on 128 products totalling $3 billion
- April: China officially announces a 180% duty on imports of sorghum
- May: China ends sorghum tariffs in an effort to promote negotiations to end the trade war
- May: US and China pause trade war to help negotiations as China agrees to buy more US goods
- May: US reinstates tariffs
- June: Trump administration puts a 25% tariff on $50 billion of Chinese goods, China retaliates with similar measures
- September: US announces a 10% tariff on $200 billion of Chinese goods, with to up that rate to 25% in 2019. There are threats to add $267 billion more if there is retaliation
- September: China retailiates with tariffs on $60 billion in US goods
- November: Wider tariffs on $200 billion in Chinese goods are threatned
And now, after the cooling of the trade war that began on December 2nd, President Trump has stated that China has indicated to his administration that they plan to get rid of tariffs on American cars – a significant step.
The question is, what happens next and what does it mean for the US economy?
What Happens Next?
This is not the first time in the last year that, for a brief moment, it looked like the trade war might be behind us – it happened back in May and lasted just about a month.
Is this “detente” a flash in the pan, or the beginnings of a robust trade deal that will be more favorable to the United States, as has been promised by the administration? There’s no way to know for sure.
However, if this pause fails in completely ending the trade war, we’re likely to see additional tariffs from both sides – benefitting neither.
What Effects Does this have on Supply Chains?
Trade tensions have always been a source of great concern when it comes to their impact on global supply chains, and this trade war of 2018 is no exception.
The concept of a supply chain means that each link in that chain is inexorably linked to the next; a disruption in one affects the entire chain.
Here’s a stunning statistic: supply chain disruptions can account for up to 80% of the potential impact on growth.
The most obvious impact on companies is the increased costs they incur; most often these costs end up getting passed off to customers. In addition, the unknowns of where this trade war goes makes forecasting for the future significantly more difficult.
So how can shippers mitigate the increased costs and greater uncertainty that comes along with trade tensions?
Data is the single most powerful asset that shippers have and many are not leveraging it to its fullest potential. Shippers need to leverage powerful technological tools in order to parse their data and interpret it in meaningful ways.
As tariffs make the Chinese market more fraught to do business with, trade will naturally become more domestically-oriented. In addition, shippers will need full visibility across modes, regions, and carriers in order to identify which are the most efficient and cost-effective.
None of these things are possible without granular-level data analytics and a robust freight audit.
In order to realize these benefits, shippers need a partner that can help them manage, audit, recover, report, pay, and negotiate across all transportation modes and services.
What Does This Mean for the US Economy
The potential for completely getting rid of auto tariffs would be a huge coup for the Trump Administration.
The United States currently exports nearly $10 billion automobiles, which is a huge increase from the $8.5 billion in 2016 – even with the tariffs. A 0% tariff on automobiles could be a major boon for the US economy.
The optimistic take on this latest announcement is that it’s the first step towards a larger trade deal that would significantly lessen the tension between two of the largest economies on earth. If the Trump administration were able to negotiate a new, wide-ranging trade deal with China, it could give the US economy the kind of shot in the arm it needs to get back to the sustained growth it was seeing earlier in 2018.
Intelligent Audit provides its clients with a global, all-mode transportation audit, recovery, freight payment, and business intelligence reporting partner.