China and US tariffs lead to South East Asia trade surge

The impact of US and China tariffs has led to a shift in manufacturing from China to South East Asia - and as the trade war rages on, this movement is likely to become more pronounced.

According to the US Census Bureau, US tariffs have been imposed on US$250 billion of Chinese goods by the end of May this year. Chinese goods imported to the US in 2018 totaled US$539 billion.

Meanwhile, by the end of May this year Chinese tariffs have been levied on US$110 billion of US goods, with US imports to China reaching US$120 billion in 2018.

US imports from  Asia – TEU change and growth rate

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Note: Growth rate and TEU difference are calculated comparing the periods Oct 16 – Dec 17 and Jan 18 – Mar 19. Source: ClipperData derived from CTS

The shift from China to other countries in Asia in order to avoid these tariffs has been clear. According to our data, in the period January 2018 to March 2019, US imports from China rose by 4.95%, representing a volume increase of 657,172 TEU versus October 2016 – December 2017. While this growth is steady, it was surpassed by much greater growth on the South East Asia to US trades, including:

  • Myanmar imports to US: up by 66.81%

  • Cambodia imports to US: up by 52.82%

  • Vietnam imports to US: up by 14.96%

While the movement of manufacturing from China to countries in South East Asia has been a growing trend over the last few years due to lower production costs there, there is no doubt that the US China trade war tariffs, which started in April 2018, have bumped up US imports from Vietnam and other countries in South East Asia.

US exports to Asia – TEU change and growth rate

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Note:
Growth rate and TEU difference are calculated comparing the periods Oct 16 – Dec 17 and Jan 18 – Mar 19. Source: ClipperData derived from CTS

And the shift of trade from China to other countries in Asia is even stronger when looking at US exports to Asia. US exports to China plunged by -30.12% in the period October 2016 – December 2017 compared to January 2018 - March 2019, mirroring a volume plummet of -1.08 million TEU.

By contrast, Vietnam and other South East and east Asian countries have sharply increased their US exports:

  • US exports to Malaysia: up by 62.38%

  • US exports to Vietnam: up by 48.87%

  • US exports to Singapore: up by 40.56%

  • US exports to Myanmar: up by 40.30%

However, while the trade war tariffs have been a strong factor behind the fall in US exports to China and subsequent growth to other countries in Asia, the gradual implementation of the Chinese ban on importing waste products has also been a major reason.

Our figures for both the transpacific main and backhaul legs suggest that the trade war has also hit Hong Kong. Its role as a major transhipment hub between China and the US and the fact that its biggest trade partner is China, has made it vulnerable to the effects of the US tariffs, even though they do not directly apply to Hong Kong.

Hong Kong’s imports and exports to the US suffered a blow in the period January 2018 – March 2019 compared to October 2016 – December 2017:

  • US imports from Hong Kong fell by -3.97%

  • US exports to Hong Kong fell by -19.83%

Following a cessation period between the US and China, when in December 2018 both countries agreed to halt new trade tariffs, the trade war is in full swing again, with new tariffs announced by both the US and China. On 1 June China launched new tariffs of up to 25% on US$60 billion worth of US goods. This comes on the back of the US doubling tariffs on US $200bn of Chinese goods in May. The US is also considering implementing tariffs on another US$300 billion of Chinese goods.

These latest moves strongly suggest that the shift from China to South East Asian countries is set to continue.

The US China trade war might not just impact the transpacific trade – it could have wider ramifications globally. The trade war could plunge the global economy into recession in less than a year, according to investment bank Morgan Stanley, if the US follows through with 25% tariffs on additional Chinese imports.

Furthermore, the Trump administration had announced its intention to impose tariffs on Mexico goods being exported to the US. The first round was due to start on 10 June at 5% on all products coming from Mexico. However, these tariffs have now been suspended after the US and Mexico agreed a new deal on border security.

Shippers with supply chains in Mexico will be relieved. Mexican goods imported to the US jumped by 10% to hit almost US$350 billion in 2018. Trade has strengthened between the two countries due to geographical proximity, low labor costs in Mexico and the fact that Mexico is an attractive option for some shippers who have moved production to the country from China to avoid tariffs.

But while the tariffs have been cancelled for now, the fact that they were being considered illustrates the unpredictability of the Trump regime and begs the question: could the US President possibly turn his attention to countries in South East Asia and consider introducing tariffs there?

Chinese president Xi Jinping and US president Donald Trump will both be at the G20 meeting of leaders in Japan this month. It is not known if they are meeting there, but if they do there will be hopes that a compromise can be reached.

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