Trump’s trade war comes with an unexpected bonus: more trade, at least for now
A few days before Christmas, the container ship SM Shanghai was steaming toward the Port of Long Beach. Just ahead and coming to the end of an 11-day journey from China, the Ever Lucent was headed for the nearby Port of Los Angeles, where the Thomas Jefferson was preparing to sail in the opposite direction for Xiamen, China.
The global economy, in other words, was chugging along nicely on one of the world’s busiest sea lanes. Trade wars be damned.
In fact, President Trump’s assault on globalization has had a paradoxical effect on world trade flows. A rush to get ahead of new and higher tariffs, particularly on U.S. imports from China, has motivated retailers and other American companies to increase orders, which has helped boost volumes at the country’s ports.
“The warehouse and distribution centers are full in Southern California,” said Phillip Sanfield, a Port of Los Angeles spokesman. “We’re experiencing some logistical issues at the San Pedro ports just because there’s so much cargo in play here.”
After an active 2017, when the Port of Los Angeles moved the equivalent of 9.3 million shipping containers — an all-time high for the facility — a busy December has put it on track to report another record year in 2018, Sanfield said. Traffic at the Port of Long Beach increased more than 7.3% through November, on pace to surpass the record 7.5 million containers it handled last year.
There are many other signs that international commerce did just fine in 2018, thanks in no small part to a busy trade year in America, the world’s biggest buyer of goods.
Despite Trump’s efforts to reduce this country’s appetite for foreign-made products, the U.S. imported more goods and services in value terms than ever in October, the latest Commerce Department data show. U.S. exports were near the all-time monthly record set in May.
And although the World Trade Organization in September forecast that global trade growth would ease this year by 0.8 of a percentage point to 3.9%, the gain would still be high by recent standards. As recently as 2016, international trade volumes grew by just 1.8%.
“Many people want to shout that the sky is falling on trade because of these trade measures” such as tariffs imposed by the Trump administration, WTO chief economist Robert Koopman said. But for now, “we think 2018 is going to end up with a fairly solid year.”
The story of global trade in 2018 does have subplots and offers warnings for the future.
Record volumes at West Coast ports illustrate at least one uncomfortable trend for Trump: His trade war so far has done more to reduce American exports to China than to lower imports from the Asian nation.
Increased traffic at the Port of Long Beach included a surge in empty containers being shipped back to Asia. In November alone the port saw more than 186,000 empty containers sent on that trip, 11% more than last year.
While U.S. retailers have stepped up purchases of Chinese products to avoid tariffs later on, “you’re seeing the opposite effect on the other side of the ocean,” said Mario Cordero, the port’s executive director. “Chinese businesses seem to be already looking to other countries for goods and raw materials, meaning there’s less demand for American exports and more empty containers.”
Meanwhile, the 2018 trade rush could be followed by a slowdown in 2019. That’s a concern for the Port of Los Angeles, which expects the scramble to beat tariffs to cause a slowdown in purchases later on. “We’re probably going to see a softening of trade,” Sanfield said.
But it’s not clear how soon the surge of imports will end.
Trump and China’s Xi Jinping agreed to a truce on Dec. 1, prompting the White House to delay for 90 days an increase in tariffs on some $200 billion in annual imports from China. The agreement called for talks to get underway in earnest in January and postponed the rise in tariffs until at least March 1.
What comes after that is unclear, as the moratorium could easily be extended for another 90 days if the two sides make even faint progress in negotiations. For many retailers, such a move would extend the uncertainty — and quite possibly their buying spree from China.
That, for many, means continuing the push to stock up on products from existing vendors in China rather than shifting supply chains that have taken years to establish, said Jonathan Gold, the National Retail Federation’s resident supply-chain expert.
“Many are trying to find those alternative sources,” he said. “The problem is it takes time. It’s not like a light switch. You can’t just switch vendors.”
Donnan writes for Bloomberg.