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"Containers Don't Lie": Keeping Score In The Trade Battles

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"Containers Don't Lie": Keeping Score In The Trade Battles

Trade flows tell the story of the ongoing tariff tit for tat, Lori Ann LaRocco explains in her new book, "Trade War: Containers Don't Lie, Navigating the Bluster."

"The containers, cargo, LNG and oil that travel on these ocean highways tell you what is truly happening," LaRocco writes. "Promises and rhetoric are just words. The status of the trade talks and whether the United States is ‘winning' can be revealed by the movement of trade."

"Trade War: Containers Don't Lie, Navigating the Bluster" is a fine digest to bring readers up to speed and illustrates that LaRocco, the senior editor of guests for CNBC business news, knows her subject matter well.

LaRocco meticulously chronicles the escalation of the trade war with China in the book, which is set for publication by Marine Money on Nov. 13.

"Based on the recommendations of Commerce Secretary Wilbur Ross and [U.S. Trade Representative Robert] Lighthizer, President Trump approved the imposing of tariffs on both solar panels and washing machines as part of his America First agenda on Jan. 22, 2018. The first shot of the trade war was fired," she writes.

Chart courtesy of Marine Money, publisher of "Trade War: Containers Don't Lie, Navigating the Bluster."

"Between Sept. 1 and Dec. 31, 2017, 4,233 containers holding solar panels were imported to the United States. Once the tariffs were officially imposed, the number of containers imported dropped drastically, to 1,734 containers between Jan. 1 and April 30, 2018. Washing machines saw a similar pattern of front-loading: 3,477 containers filled with washing machines from China were imported between Sept. 1 and Dec. 31, 2017; when the tariff was imposed, the number dropped to 1,887 containers over the first months of 2018."

The author of four other books, LaRocco will speak at FreightWaves LIVE in Chicago on Nov. 12.

Input From Experts

LaRocco gets input from respected experts throughout "Containers Don't Lie." Those include prominent port figures like Port of Long Beach Executive Director Mario Cordero and Port of Los Angeles Executive Director Gene Seroka, trade analysts like BIMCO's Peter Sand and market experts like FreightWaves' Henry Byers.

"China accounted for 68% of our container imports and 28% of our container exports for a total of 54% in 2018," Cordero explains in the book. "I think the main talking point here is that anytime you have a disruption at the level that we've had, it's going to be difficult for the American exporter to all of a sudden identify new markets to replace the common market they've had with Asia, more specifically China."

Chart courtesy of Marine Money, publisher of "Trade War: Containers Don't Lie, Navigating the Bluster."

Later, in a chapter titled "Ports and the Front-loading Wave," LaRocco writes, "On an average day before the trade war began, the Port of Los Angeles processed 10 vessels; the Port of Long Beach processed eight. ‘For argument's sake, the front-loading increased that number of vessels to 14 and 10,' said Seroka. ‘We also worked through the largest exchange value ever. Each ship got bigger. We were doing more boxes on and off. The average time those ships were in port depended on their size, and they were anywhere between three and five days.' A normal stay for a vessel before the trade war was two to three days."

LaRocco writes in a chapter titled "U.S. Agriculture Sales Spoil" that the "retaliatory pattern of buying Brazilian soybeans continued. This was predicted months before by maritime trade analysts like Peter Sand of BIMCO. China's negotiating strategy to not back down was evident in the cargo volumes. There is no spin. Brazilian soybean exports to China exploded in 2019. According to the vessel data and analysis by BIMCO, compared to the first two months of 2018, Brazilian exports employed an extra 47 Panamax loads (3.5 million tons). ‘The recent upturn in Panamax and Supramax earnings is likely to be linked to the start of the Brazilian soya bean exporting season. The large volumes being exported, in particular to China, have driven up demand for the midsize dry bulk vessels,' said Sand."

Changes in the flow of containers has forced those operating in the industry to be nimble to respond to changes in the supply chain infrastructure, says LaRocco, who quotes Henry Byers, market expert on international freight forwarding and maritime at FreightWaves, as saying, "One thing is certain: As long as trade is being used as a negotiating tool, companies with supply chains will struggle to keep costs manageable."

Soybeans And Steel

LaRocco devotes a good deal of space in the book to the tariffs' effects on the American farmer.

"The tariff impact was swift and hard. U.S. agricultural exports crashed from $15.9 billion in 2017 (at that time, 12% of all U.S. goods were exported to China) to $5.9 billion by the end of 2018 (with 4.9% of all U.S. goods exported to China.) This was a drop of 63% year-on-year."

Chart courtesy of Marine Money, publisher of "Trade War: Containers Don't Lie, Navigating the Bluster."

She also recounts the "tale of the steel tariff."

"When the steel tariff when into effect, U.S. steel imports went down. According to the U.S. Census Bureau, in 2018 the average monthly volume of steel imports was down 26.2% from the 2017 monthly volume of 2.5 million metric tons. The decrease continued into 2019. From January to May 2019, the United States imported 12.3 million metric tons of steel. That was an 11.6% decrease from the 13.9 million metric tons imported in 2018 over the same period. From a value designation, imports decreased to $11.3 billion — a 15% decrease from the $13.3 billion in 2018."

Later, she writes, "Because of the decrease in steel imports and the increase in U.S. steel exports, the trade gap narrowed by 30.3% in 2019 compared to one year ago. Breaking it down by cargo: The volume of U.S. steel exports increased by 4.6% from April 2019 to May 2019. Steel imports during the same time frame decreased by 37.8%.

"Statistics from the Bureau of Labor show that the number of people working in iron and steel mills increased from 82,087 when the 232 tariffs were levied to 84,913 in December of 2018. United States Steel Corporation also reopened two blast furnaces. Things were looking good. On the pricing side, the tariffs gave the U.S. companies the ability to raise prices to just under the tariff prices of their competitors so they could make a profit and still be the less expensive alternative. But the positives were short-lived."

LaRocco quotes David Lipschitz, senior analyst of metals, mining, steel and coal commodities and global markets at Macquarie Capital Inc., who said, "The problem was that at the end of the day the tariffs stimulated more production, and that extra capacity eventually depressed steel prices. The natural progression of supply and demand was thrown out of whack."

LaRocco also traces what she calls "aluminum's 232 journey".

"The 232 tariffs gave the aluminum industry what it needed to reinvest and grow. But, unfortunately, they also fueled many different trade wars and led to retaliatory tariffs being levied against the United States.

"‘The 232 impact on steel and aluminum was very similar to the tariffs on washing machines,' explained Erin Ennis, former senior vice president of the U.S.-China Business Council, which represents 200 U.S. companies that do business with China. ‘While it had a nominal effect on Chinese imports, it burned a bridge for the United States with our other trading partners. The tariff essentially created a multifront battle with the countries that are actually more likely to be our ally in going after some of China's trading practices. Now they are part of the war.'"

Later, LaRocco writes, "After the 232 tariffs on steel and aluminum were imposed, China struck back, slapping retaliatory tariffs on almost all U.S. food and agriculture exports. Soybeans, the second most planted field crop in the United States, quickly became the poster child of pain for the trade war. The politically calculated retaliatory tariffs by the Chinese focused on the farming belt — one of the voter bases that helped Trump win the 2016 election. It was a calculated move. In 2017, U.S. agriculture products to China topped around $16 billion. China isn't the only country hitting the agriculture industry. The European Union and India have also levied retaliatory tariffs."

Chart courtesy of Marine Money, publisher of "Trade War: Containers Don't Lie, Navigating the Bluster."

Who Pays?

"President Trump has said on numerous occasions that China has ‘paid billions' in tariffs and while, yes, billions have been collected, the question remains: Who exactly is paying?" LaRocco writes.

LaRocco said she asked U.S. Customs and Border Protection who specifically is paying the tariffs — the countries that are exporting their products to the United States or the U.S. importers receiving them? "A CBP spokesperson responded: ‘The importer of record (company) is the entity that is liable and pays for the tariffs in full. That means 100% of all commodity lines coming into the U.S. are paid for by the U.S. importer. The importer is liable to pay that reported amount.'"

In the chapter on front-loading, LaRocco quotes the Port of Long Beach's Cordero as saying, "No one wins in a trade war. The reality is U.S. importers are paying the tariffs, not the Chinese. Based on the drop in U.S. exports to China, China is not buying American goods. The U.S. is not winning."

Trump's Tweets

LaRocco breaks up the data-heavy sections with reprints of Trump's tweets interspersed throughout the book, making it almost light reading. Those tweets include this one from as recently as Oct. 12: "The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country. In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!"

LaRocco marshals data to dispute those assertions: "According to the Farm Bureau, in 2016 China made $25,459,000 in agriculture buys; in 2017, $24,348,000. Those two years combined totaled $49.8 billion. So the new deal that was announced would get the agriculture community back to where it once was. Nothing groundbreaking when you look at the historical data. What this trade flow data does show is the trade destruction the trade war created. Based on the same Farm Bureau data, the Chinese purchased $13,420,000 in 2018.

"‘So let me get this straight, we should be breaking out the champagne for the promise of purchases that would get us back to where we once were?' questions [Ohio soybean farmer Chris] Gibbs. ‘How gullible and desperate does the president think we farmers are? We know how much China was buying before this mess. This deal is not huge.'"

What's Next?

LaRocco has managed to chronicle trade war developments through mid-October.

"In an email to clients on Oct. 16, 2019, BIMCO's Sand warned, ‘Container shipping is a servant to the consumption of the advanced economies, and a slowdown in GDP growth of these economies will lead to lower container shipping demand in the foreseeable future,'" she writes.

The only concern with an up-to-date book is that with one tweet from the White House, everything could change and LaRocco's tome could be out of date. Most certainly a sequel will be warranted.

LaRocco's book is available here. Tickets to FreightWaves LIVE are available here.

Image Sourced from Pixabay

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