Supply chains have been beset by a swathe of new trade protectionism in the past week. In new research, we take a deep dive into the US administration of President Joe Biden’s new tariffs on imports from mainland China. We also dig into mainland China’s tariffs on US chemicals and Taiwanese polycarbonate, the US withdrawal of a Venezuelan oil license and duties on steel applied by Brazil, Chile and Mexico.
· The latest S&P Global Purchasing Managers’ Index™ (PMI) shows manufacturing new orders are slowing, but at least deliveries are speeding up across the US, eurozone the UK and Japan. There are signs of green shoots for the freight forwarding sector, although notable shifts in market share are underway. The warehousing sector is also in flux, with falling rates and shifting priorities in the apparel sector.
Commodities: Tariff and sanctions week
In new research this week, we take a deep dive into the US administration of President Joe Biden’s latest round of tariffs in the metals sector.
· The Biden administration has announced a new round of tariffs on imports of steel and aluminum from mainland China. Precise tariff rates and targets have yet to be set, although additional tariffs on Chinese steel will likely not be a factor at a macro level as mainland China accounted for less than 1% of US steel imports in the first two months of 2024. It is also unlikely to be significant to the Chinese economy given that the US accounted for just 0.8% of Chinese steel exports.
· By type, US imports of Chinese steel account for 0.4% of total non-alloy steel by weight. Stainless steel has the highest proportional share, with mainland China accounting for 1.2% of US imports, but is still below significant levels for the US industry. Individual products are more heavily exposed to mainland China, particularly among household goods.
· Mainland China made up 5.2% of US aluminum imports in the fourth quarter of 2023, lagging the 52.6% sourced from Canada. The tariffs may have more impact on aluminum markets recently affected by additional sanctions on Russian trade.
· Protectionism and industrial policy will spread and be driven by political considerations through 2024 and beyond. Indirect imports via Mexico may receive additional scrutiny.
· Iron and steel imports to Mexico from mainland China increased by 9.1% in the fourth quarter of 2023 before falling by 14.8% in January and February 2024 combined. Overall imports are still well above prior years’, with imports from mainland China in 2023 being 72.4% higher year over year against the 2021 level.
The US Trade Representative will “soon” complete a review of Section 301 duties applied to imports from mainland China, according to reports. The five-yearly review should have been completed in 2023 given the first duties were applied in July 2018. The review could include recommendations ranging from cancellation to expansion.
· No matter the outcome of the review, it appears unlikely that the Biden administration would cancel the duties given both the proximity of the elections (see “Tariff tactics back in focus: US trade policy in 2024 and beyond”) and the apparent plans to increase List 4A duties on steel and aluminum.
· Mainland China’s share of US imports of products covered by the tariffs has steadily fallen since their imposition, reaching 9.6% in the 12 months to Feb. 29, 2024, from 17.7% in calendar 2017.
· The impact of tariffs, as opposed to mainstream reshoring, should not be overstated — the share of imports not covered by tariffs fell to 28.6% from 38.6% over the same period, albeit only since late 2022.
While not specifically connected to the Biden administration’s latest move, the Chinese government has applied a 43.5% tariff on imports of propionic acid from the US. That followed a review that had been launched in July 2023 and covers products reported to be made by Dow Inc. and Eastman Chemical Co., among others.
· From a macro perspective, the action is largely irrelevant. While the US accounted for 99.5% of Chinese imports in the 12 months to June 30, 2023, the value of the imports was just US$12.5 million. That subsequently fell to an annualized US$1.2 million in the first quarter of 2024.
· Mainland China’s share of US exports amounted to 10.3% in the 12 months to June 30, 2023, and dropped to near zero in the three months to Feb. 29, 2024. Total US exports fell by just 2.2% year over year in the past three months, with shipments to the EU, which accounted for 49.7% of exports, rising by 3.5% to partly compensate the loss of shipments to mainland China.
Mainland China has also applied final tariffs to imports of polycarbonate from Taiwan after a preliminary decision made in August 2023.
· Mainland China’s share of Taiwan’s exports fell to 63% in the three months to Feb. 29, 2024, from 78% in 2022, while Taiwan’s share of mainland China’s exports dropped to 18% from 23%.
· The asymmetry of dependency is not uncommon and was seen in import restrictions applied by mainland China in December.
The US government will not renew a license allowing the trade of oil and gas with Venezuela that was granted in October 2023. That is due to the US State Department’s concerns about Venezuela’s electoral restrictions, according to S&P Global Market Intelligence.
· The incremental impact on oil flows to the US should be minimal, as exports under the prior license (GL41) remains in place and allows existing supplies to continue.
· Overall, Venezuela accounted for just 2.2% of US crude oil imports in the 12 months to Feb. 29, 2024, Market Intelligence data shows.
It is not just the US applying new tariffs to steel. Mexico, Chile and Brazil are adding import duties to hundreds of steel and aluminum products. In the case of Mexico, that covers territories that are not free-trade-area (FTA) partners with duty rates ranging from 20% to 35%.
· The move had been previously trailed by the three countries’ governments.
· Mexico has free trade agreements with 50 territories, most notably from a steel and aluminum perspective, including United States-Mexico-Canada Agreement (USMCA) countries, the EU, Japan and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade area.
· The leading suppliers to basic steel and aluminum (HS 72, 73 and 76) to Mexico excluding FTA partners include mainland China with 17.8% of imports in 2023, according to S&P Global Market Intelligence data, as well as Taiwan (2.5%) and India (2.0%).
· A wide range of sectors in Mexico depend on supplies from mainland China. Mexican imports of steel from mainland China fell by 10% year over year in the first quarter of 2024.
Japan has launched an antidumping review of Chinese exports of graphite electrodes, which are used in electric arc steelmaking.
· Suppliers from mainland China accounted for 74.8% of Japan’s imports in 2023, S&P Global Market Intelligence data shows, with average unit prices that fell by 10.7% year over year.
Source: S&P Global Market Intelligence
