Article originally in the Financial Times. Other articles .
Alan Beattie is the chief reporter of the Financial Times for Trade.
Three years ago, the ports on the west coast of the United States, their container terminals and railway lines were hopelessly overloaded as a result of the expected disturbance of value networks after the Covid-19 pandemic.
They were considered a deep and permanent weakness of globalization. Today, the situation is the opposite – the ports are emptied because Donald Trump’s duties have made holes in the schedules of cargo ships from China. Some people will not be really satisfied.
It will look bad
The first situation reflected the rapid recovery of goods after Lockdowne through traditional channels than some structural problems. When everyone bought their first electric bikes and arranged gardens with new garden furniture, ports (and more or less the economy) returned to normal.
If the US President alleviates his customs war against China or if the value networks find ways to “hide” Chinese exports to the United States through third countries, the same may happen in the opposite guard. Trade and economy will not only recover if Trump is determined to increase protective measures to stop imports.
In the medium term, it will look pretty bad no matter what it will do. The empty racks and dolls for American children in the spirit of Trump’s new puritanism will be a terrible business card, and small businesses that go bankrupt due to lack of raw materials from China can cause a recession that Trump has no problem with their statements, although it sounds unlikely.
Ryan Petersen of the logistics and pre-prescription company Flexport, which has become the voice of freight transport, as in the traffic jams after the pandemic, claims that duties are for small businesses that are its customers, “an event similar to the extermination of dinosaurs asteroid”. However, evidence of recent years suggests that both international trade and the US economy are completely able to handle large shocks without permanent damage.
Shipping absorbs shock
Economist and historian Marc Levinson, author of the book The Boxwhich is an authoritative work on the history of shipping container transport, claims that shipping is in reasonable condition to absorb a shock caused by the conflict between China and the United States, even if this led to a reduction in overall demand and not only to change the arrangement of business routes.
Levinson points to the irony that the profits of the shipbuilding have grown thanks to the Housian Block of the Red Sea, which forced container ships to deposit the southern tip of Africa.
The shock caused by Covid in the trust of households and growth caused in 2020 a global recession and global trade in goods and services fell. However, growth has been quickly restored due to fiscal support and release of Lockdown.
Compared to other developed economies, especially in Europe, the United States from recession is recovering with little “hyssthesia” – lasting effects on production and employment resulting from cyclic declines. The unemployment rate in the United States in the spring of 2020 fired at almost 15 percent, but fell below four percent by the end of 2021.
The circumvention of duties is difficult to prevent
The question is not so much whether the United States and the trading system can absorb the shock of the basic 10 % duties that Trump has so far imposed on almost all business partners, and even much higher duties to China. They probably can do it with some time.
As we have seen during the commercial war in its first term, Chinese exports are still entering the United States by a combination of a change in the label or the actual transfer of production with added value to third countries. This is now being prepared by economies that the International Monetary Fund calls “connecting”.
The United States is trying to interfere vigorously against such circumvention, but it is a huge market for massive motivation to find a way to circumvent duties. Value chains with large savings from range and susceptible to irreversible damage caused by shocks are currently relatively well protected by exceptions. This is mainly the automotive industry.
They revealed Trump’s bluff
The question is whether Trump is actually determined to block imports from all sources. Given the impact of his tariffs on trade, to some extent, they were rightly compared to the UK’s decision to leave the EU. The British government has chosen a hard form of Brexit, which indefinitely disadvantaged its exporters (and importers) and weakened its long -term productivity, perhaps up to four percent – in a situation where business friction does not disappear over time.
Trump’s equivalent would not be simply to introduce stable duties and leave them so, but infinitely try to pay off the holes and limit the overall import in a way that would continue to harm not only existing business patterns, but also new ones that are beginning to create.
Where Trump gets, he is in the stars, although it is becoming increasingly clear that many big business partners of the United States – China, Japan, the EU – revealed Trump’s bluff when he tried to quickly force them to concessions. Given that in the past it has already retreated face to face, it is a step in the right direction.
In any case, although American companies dependent on China’s trade awaits painful adaptation in the coming months, serious permanent damage is likely to occur only if Trump starts with a policy “at all costs” aimed at limiting any import.
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