Proposed US tariffs seen impacting dry bulk trade
In a significant move, the US president-elect announced plans to impose a 25% tariff on all imports from Canada and Mexico starting 20 January 2025 and increase tariffs by 10% on Chinese goods; there could be more announcements in times to come. These tariffs could impact the dry bulk trade with two potential outcomes. The first could result in almost stable US imports with new tariff costs being absorbed by market participants whereas the second could compel US importers to look for different sources, bringing about changes in trade flows in the longer term.
In a little more than a month the president-elect will become the US president, but there are already talks of a series of new tariffs against many economies. In a major announcement, the president-elect has indicated tariffs on goods from Mexico and Canada along with higher tariffs on goods from China. The increase in tariffs could lead to longer sailing distances if they result in a shift in trade; for example, instead of higher Canadian fertiliser exports to the US, imports from Russia or Israel might increase, which would lengthen sailing distances and strengthen the demand for dry bulk shipping. Similarly, steel imports from Canada and Mexico may be replaced by Brazilian, South Korean or Japanese supplies, lengthening sailing time and thereby increasing employment of Panamax and Supramax vessels – the dominant players in the US market, as per a Drewry analysis.
It further elaborated:
Price of imports
In either scenario, higher tariffs or freight costs would increase the price of imports into the US, putting inflationary pressures on imports and deterring any substantial cuts in interest rates by the Fed. Drewry expects the US dollar to continue to strengthen, increasing the risks of easing monetary policy for central banks of other countries with the potential for currency depreciation.
The US economy has proven to be resilient relative to other major economies with the US Dollar Index remaining quite high over the past three years. This robust economic performance is set against the growing challenges of China’s economy, a signal of a re-shifting of global economic balance.
The ratio of China’s GDP to US GDP reached its peak in 2020 but has since declined. In addition, the gap in investment as a percentage of GDP between China and the US peaked in 2010 at 28%, but narrowed to 20% by 2022. These trends indicate that investments, which were once heavy into China, are now gradually flowing into the US, which fits well with the global readjustment of risk and opportunity.
Investment in the dry bulk segment and its trade have traditionally been positively correlated. With higher investment in the US, the country’s dry bulk trade has been increasing while that of China has been decreasing in line with the country’s reducing investment. The recent announcement made by the US president-elect to impose tariffs has implications that may strengthen the US dollar by delaying interest rate cuts. This trend will keep US investments attractive while widening the country’s role in the dry bulk sector.
China’s role in this evolving landscape continues to diminish, as evidenced by its declining share of global dry bulk trade and investment relative to the US. With the once-dominant Chinese economic growth slowing and investment flows shifting westwards, the balance of power in dry bulk trade is also adjusting. The US appears poised to consolidate its position as a key player in this sector, leveraging its economic resilience, investment appeal and shifting trade policies to cement its influence.
Ultimately, the interplay of tariffs, trade and monetary policy will shape the trajectory of both the US economy and global dry bulk trade in the coming years. While the immediate impact may favour US growth, the broader implications for international trade relations and economic stability remain to be seen, said the analysis.
Source: Exim News Service: London, Dec. 5