US-China tariff deal – no rush to book Pacific cargo
Uncertainty has been the hallmark of Donald Trump’s administration since the US President took office for a second time in January and there is no guarantee negotiations with China over the next 90 days will move in the right direction.
In agreeing to cut import taxes by 115%, lowering duties on Chinese goods to the US to 30% and US exports to 10%, the US and Chinese negotiators, US Trade Secretary Scott Bessent and China’s Vice Premier He Lifeng, have also applied a 90-day time limit, from 14 May, to the agreement, raising the fear that full, unsustainable tariffs will be reimposed at the end of the period.
Diplomacy has worked its magic quietly in the background while the gorillas in the jungle still entertain the crowd,” said Xeneta Chief Analyst Peter Sand, who added, “If there’s one thing we’ve learnt in the last 100 days it’s that things may change dramatically.”
Sand believes that uncertainty is integral to the Trump administration’s plan and the ongoing talks between the two countries means that if negotiations do not “move in the right direction we will see a return to where we are now”.
“We are not out of the woods yet, and we will not be for as long as the Trump administration is in the House,” said Sand, emphasising that uncertainty is a fundamental element of the US negotiating posture.
Meanwhile, Darron Wadey, an analyst at Dynamar in the Netherlands, sought to put the negotiations and the latest deal into context, with more emphasis on psychology behind the discussions.
“You are dealing with the world’s two economic, trading and military superpowers, one somewhat mature in its standing, the other enjoying a meteoric rise. With dynamics such as these, especially when the world is watching, it could be difficult to make concessions without appearing to have come off the worst. So, in that regard, reaching any deal would be difficult,” said Wadey.
Wadey went on to point out that both China and the US are major trading partners, so an acceptable “resetting of the relationship” is critical.
“In any event, the situation should be better now than it was yesterday,” added Wadey.
Neither Sand nor Wadey foresee a rush to book cargo on vessels crossing the Pacific, with Sand pointing out that at 30%, “Tariffs on Chinese imports to the US remain high, and while we will start to see some goods priced out of the market return, with volumes increasing, there will not be a massive increase in volumes”.
Wadey argues there will be at least a four-week lag for any increase in volumes to “kick in”.
Combined, the ports of Los Angeles and Long Beach were expecting 199,000 teu to be delivered in the most recent week. This was already 15% down on the 234,000 teu average for the January-April period. This suggests that the April trade measures were just starting to take effect. These cargo flows will likely continue to stay at that level if not fall further for a few weeks yet,” concluded Wadey.
Other West Coast ports have also suffered with the port of Seattle reporting that no container ship docked at its terminal last Wednesday, “a phenomenon not seen since the pandemic,” said Wadey.
Xeneta is expecting an earlier than usual peak season as a result of the lowering of tariffs, “We can’t expect a complete U-turn, “Some goods that were not able to be shipped, due to the unsustainable tariffs, will now be shipped,” said Sand, “We will see how much demand returns over the next weeks.”
In addition, Sand argued that with tonnage redeployed to other trades it may take a while for those vessels to be reintroduced to the Pacific trades again.
The analysts agreed that the right tone was apparently adopted by both sides and that this was a reason to be optimistic for the discussions over trade between the two super-powers over the coming weeks.
Even so, neither analyst was prepared to offer a view on what the situation will be on 6 August, when the 90-day pause ends.
“The devil in whatever could happen will be reflection of the detail of what has just been agreed. Perhaps that detail needs to be digested first, slowly and calmly, before making any predictions,” said Wadey.
A guide to what could happen after the pause in the trade war could be seen when the 90-day pause in the tariffs for the rest of the world ends, suggests Wadey.
But Sand did say that under the current circumstances “it’s tricky” to sit at the table and negotiate, but he added, “The current 145% tariffs are clearly unsustainable,” for any length of time.
