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Home»Air Cargo»U.S.-China Trade Agreement On Life Support
Air Cargo

U.S.-China Trade Agreement On Life Support

The volume of trade has direct effects on both the air cargo market as well as ocean shipping
Metropolitan Airport NewsBy Metropolitan Airport NewsJune 26, 2020No Comments4 Mins Read
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There is worldwide anger at China as shown by this depiction of Chinese flag in Danish newspaper 

Get out the respirator, it looks like the patient is barely alive. And the patient is the U.S.-China Trade Agreement. The interesting background story to the collapse of negotiations is that the principle problem has nothing to do with trade, but has its genesis in the Chinese government’s misinformation and obfuscation which had a direct effect in causing the pandemic in the United States. A pandemic that has crippled the economies of the world going forward several years. 

The other factors are purely economic; the deteriorating relations is the Chinese security law covering Hong Kong has implications for container, tanker, dry bulk and gas shipping demand, as well as shipping stocks.

President Donald Trump said in a speech on May 29th that China “ripped off the United States like no one has ever done before,” and “got away with theft” of hundreds of billions of dollars a year; that China “raided our factories, offshored our jobs, gutted our industries, stole our intellectual property” … “unlawfully claimed territory in the Pacific Ocean, threatening freedom of navigation and international trade,” broke its word “on ensuring the autonomy of Hong Kong” and “instigated a global pandemic.”

Container Shipping

There was no mention of new tariffs in Trump’s fiery speech. Yet for U.S. importers who still have decent demand prospects despite COVID-19 and who rely on Chinese goods, the situation could spur preemptive ordering.

Even before Trump’s speech, there was talk in container-shipping circles that importers were accelerating orders on concerns that U.S.-China relations would fray as Election Day neared.

Customs filings plunged in February due to the shutdown of Chinese exports following the initial outbreak in Wuhan. They rose through March and the first three weeks of April as Chinese exporters reopened and caught up with delayed U.S. orders.

The lockdown of U.S. businesses caused orders to be canceled and container shipping alliances to “blank,” or cancel, about 20% of China-U.S. sailings in May and June. Customs filings fell sharply in late April and through the first half of May.

Then China-U.S. volumes started to rebound in the back half of May. Carriers began “unblanking” previously canceled sailings and adding “extra loaders” (nonscheduled sailings).  U.S. customs filings jumped by a third in the last week of May, driven by imports from China. This could be evidence of renewed consumer demand following the reopening of state economies, or of importers concerned about U.S-China relations and front-loading shipments — or both.

If U.S.-China relations worsen further, U.S. sanctions could target Chinese energy and tanker companies. This has happened once before when America sanctioned COSCO (Dalian) in September due to alleged carriage of Iranian crude oil.

Dry Bulk Shipping

One of the big hopes following the signing of the Phase One trade deal was that China would resume large-scale purchases of U.S. soybeans, throwing a lifeline to America’s struggling farmers. 

It was looking positive. Large Chinese soybean orders were reported by the U.S. Foreign Agricultural Service (FAS) for the weeks ended April 23 (618,100 tons) and May 14 (737,400 tons).

It’s not looking so positive anymore. Bloomberg reported that the Chinese government has ordered state-run companies Cofco and Sinograin to suspend agricultural purchases from the U.S., including soybeans, pork, corn, and cotton, in response to Trump’s speech.

Gas Shipping

Heightened U.S.-China tensions are a negative for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) shipping.

After China applied a retaliatory 25% tariff to U.S. propane in mid-2018, LPG exported from the U.S. Gulf was diverted to Japan, Korea, and Southeast Asia, with China switching its purchases to the Middle East. After the signing of the Phase One trade deal, China began offering tariff waivers, and U.S. propane exports to China resumed in March. Escalating tensions could jeopardize the thawing of that trade.

The hope in the LNG sector was that a detente between the U.S. and China would lead to Chinese long-term supply contracts for U.S. exports, which would, in turn, underpin financing of new U.S. liquefaction (export) projects.

The collapse of LNG pricing in the wake of the coronavirus has slammed the brakes on these new developments and U.S.-China tensions are adding insult to injury for already stalled projects. 

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