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Jan. 4, 2019

Tariff Insider: January 4, 2019

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The Big News: U.S. and China to Meet Again Next Week

The U.S. and China are scheduled to meet in Beijing next week for trade talks, the first face-to-face meeting of trade officials since the 90-day “truce” was established. The two countries have been in contact since their last meeting in Argentina, but officials don’t appear to have high hopes for a trade resolution by March 1st. President Trump and other members of the U.S. delegation team have said they would be willing to further postpone tariff increases if the two countries have made enough progress, although U.S. Trade Representative Robert Lighthizer, who is in charge of the U.S.-China talks, has stated otherwise.

Impact: Industries

Lumber industry yells timber: The lumber industry finished 2018 as one of the lowest-performing commodities. The tariffs applied to Canadian lumber raised the price on softwood, the wood used to build U.S. homes, and U.S. lumber exports to China have significantly decreased as a result of the trade war. Sawmills are being forced to cut production, and a combination of high costs, natural disasters, and trucking shortages are adding thousands of dollars to the prices of new homes.

Home renovation costs rocket: The cost of tariffs has trickled down to projects like kitchen remodeling, as increased taxes are applied to goods like tile, lighting products, and flooring. U.S. importers have tried to either find an alternative to their Chinese manufacturers or import inventory in advance of the tariff escalation, but have also, in some instances, been forced to raise prices to offset tariff costs. U.S. suppliers of these products are also raising prices as a result of increased demand following the tariffs, which are expected to remain high even if the U.S. and China reach a trade deal.

Impact: Shippers

Government shutdown sows MPF payment doubts: Eligible farmers affected by the tariffs are expecting to receive the second round of Market Program Facilitation payments, as we reported in last week’s Tariff Insider. But payouts are now uncertain following the government shutdown. One of the affected agencies is the USDA’s Farm Service Agency. As a result, farmers have temporarily lost their government communication. The shutdown also means that the data on how many U.S. agricultural products China will be purchasing is not available, producing additional uncertainty in the U.S. market.

Steel tariff exclusion challenges: Steel importers are reporting that the request system for tariff exclusions is inconsistent and confusing. The Commerce Department says it’s revising the exclusion-request process to make decisions more quickly, but notes that the department has been “treating each exclusion request and objection in a fair and equitable way.” Importers, however, state that when their requests are rejected, the reasons why aren’t fully explained to them, filling the steel industry with further “doubt and uncertainty.”

__Impact: Global Economy __

Chinese factory demand continues to slow: The manufacturing purchasing managers index in China dropped to its lowest level since 2016, and is expected to continue slowing down in 2019. The trade war has decreased manufacturing demand, especially since the rush to import goods in advance of the tariff increase has slowed down. The China government may provide a stimulus to boost the economy, although this depends on the outcome of the trade agreement between the U.S. and China.

2018’s trade war losses total billions: The trade war is reported to have cost both the U.S. and China billions of dollars in losses in 2018, with both sides falling into lose-lose situations. For example, after retaliatory tariffs were imposed on U.S. soybean imports, China starting buying soybeans from Brazil, but the surge in demand drove up the Chinese buying price. Meanwhile, the U.S. government has to compensate farmers for the loss of Chinese buyers, adding up to billions in Market Program Facilitation payouts.

Want to get more news and insights about the evolving shipping and logistics landscape? Sign up for Flexport's Weekly Market Update. And check back here next week for an updated round-up of recent tariff coverage.

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