The tariffs will
be imposed on a wide range of Chinese imports including semi-conductors,
batteries, EVs and solar cells, with the changes staggered to come into effect
between 2024 and 2026.
Peter Sand, Chief
Analyst at Xeneta, said: “The new tariffs under President Biden may be a case
of history repeating. If so, businesses will be braced for increasing supply
chain costs and ultimately it will be US consumers who pay for it.
“Back in 2018, we saw
the US under President Trump impose a wide raft of tariffs on Chinese imports.
China retaliated by imposing increasing tariffs of its own, and this constant
trading of blows saw ocean freight container shipping rates from China to the
US West Coast increase by more than 160%.
“Rates began to fall
away again towards the end of 2018 as the situation calmed, but they never
returned to the same level, meaning a new status quo was established in the
market at a higher cost level.”
Sand believes businesses may look to alternative
supply chain routes into the US in light of the latest tariffs.
Growth in demand for
container shipping imports from China into Mexico in the first quarter of 2024
had already increased by 34% compared to 12 months ago, fueling suspicions it
is being used by some shippers as a ‘back door into the US’.
Sand said: “The ocean
freight container market has seen incredible increases in demand from China
into Mexico and the latest US tariffs could see this rapid growth continue.
“In a purely hypothetical scenario, at the current
growth rate, by the year 2031 there will be more containers imported from China
into Mexico than the US West Coast.
“We may also see US
shippers look to import goods from nations such as Vietnam as an alternative to
China - as has increasingly been the case since the 2018 tariffs hike hit the
market.
“However, these are
immature supply chain routes compared to the established Transpacific trade
direct from China to the US West Coast. This means more complexity, more
volatility and increased cost.”
The announcement of tariffs also comes at a time
when the ocean freight container shipping market is being impacted by major
black swan events including conflict in the Red Sea and drought in the Panama
Canal.
On May 14, the average
spot rate for ocean freight shipping from China to the US West Coast stood at
USD 3837 per FEU (40ft shipping container), which is an increase of 162%
compared to 12 months ago.
From China into the US
East Coast, average spot rates have increased by more than 100% compared to 12
months ago.
Sand said: “Ocean
freight shipping routes from China to the US East and Gulf Coast are still
being hampered by restrictions in the Panama Canal. The next best alternative
is the Suez Canal, but this isn’t an option either for the majority of shippers
due to the conflict in the Red Sea.
“More red tape and
complexity in supply chains is the last thing the ocean freight shipping
industry needs right now.”
Sand believes much
will now depend on China’s response. “There is no doubt this is an aggressive
move by the US against China and, once again, we are seeing geo-politics impact
global supply chains.
“The new tariffs will
affect around $18 billion in annual imports, which is not a huge amount in the
grand scheme of US trade, but if China responds in the same way as 2018 then we
could be at the start of another spiral of escalating tariffs. That will mean yet more pain for shippers
and ocean freight service providers to deal with.”