Episode Transcript
[00:00:03] Speaker A: You are listening to the Freight Buyers Club, a home for those interested in international trade, shipping, procurement, logistics and air freight. In fact, all things supply chain in the Americas, Asia and beyond. This podcast is brought to you by your host, Mike King and produced in partnership with Demurco Express Group, a global 3 PL that specializes in managing logistics to, from and within the Asia Pacific region.
[00:00:30] Speaker B: Hello. Welcome to the Freight Buyers Club and I'm delighted to say I'm joined once again by Paul Bingham. And I'll just check the title. Director Transportation Consulting S and P Global Market Intelligence.
[00:00:42] Speaker C: Right. Thank you. Thank you, Paul.
[00:00:45] Speaker B: It's 4th of March. I want to timestamp this because our world is changing rather quickly. Tariffs. We've got a new sort of level of tariffs. I think it's very different from the first Trump administration. As of today, 25% tariffs on Canada and Mexico have been put in place. We've got another 10% on Chinese imports into the U.S. we've had a range of retaliation measures announced or threatened. We're not sure where that's going to go. Is the US really does it have the processes and the bureaucracy in place to manage this new trade war? And I say that in light of, of the sort of bungled effort to change de minimis rules that the US Postal office couldn't organize and the lack of new employees.
Cbp.
[00:01:36] Speaker C: Now, I don't know about the employment capabilities, but clearly there's systems in place that are actually pretty advanced, that mostly are due to industry, not the government, to be able to adapt very quickly with compliance. However, as you point out with de minimis, there are limits to that and there will certainly be limits to this one. We have the exclusion on the 25% tariffs with Canada for 10% for energy. I don't know if they've got all the tariff lines defined in what they published today, what qualifies and what covers. And there's other things at the edges that we perhaps don't actually know. So there's likely to be some follow on to try to get some clarification and to find out who is complying or who wasn't, who was able to actually collect the tariffs or who wasn't. And then as you say, you've got, you know, this is a changing, it's not as if it's static. Fix it once because it could change tomorrow. These are the tariffs that are in place today.
[00:02:25] Speaker B: And we're also looking at maybe tariffs on the eu. Can you, with your economics background, can you explain the rationale that this administration is giving when they talk about VAT tariffs and reciprocal tariffs.
[00:02:39] Speaker C: Yeah. The definition that we've heard from the US on this is going beyond the conventional definition of tariffs, which are actually applied import taxes, to include other fees, even non tariff barriers that have never been previously brought into consideration. On defining what you would say would be this now new reciprocal tariff definition, it seems to be rather amorphous. In fact, the definition of it seems to give some flexibility to the US to define what that level is. That's clearly above just the actual tariff level that's in place in the trade partner country, which makes it much harder for anybody to try to actually plan to how you can accommodate for it and what the level will be in terms of what they're going to actually have to pay.
[00:03:21] Speaker B: Do you, do you see in general that there's like an overriding strategy around tariffs from this US administration or is this just the weapon that fits all sorts of ends?
[00:03:32] Speaker C: I think it's both in a way. There clearly has been going back to the first Trump administration, a use of tariffs to try to build up the US at the expense of the trade partners, which is understandable from a traditional use of tariffs if the one argues that that's an appropriate tool. But this time in this administration there are other uses of tariffs that have nothing particularly to do even with trade. But it's being used as an all purpose lever for policy reasons to exert control and to obtain influence over other countries and therefore benefit the United States in other dimensions. Unconventionally, in terms of use of tariffs ever before, what does this do to.
[00:04:10] Speaker B: The US Business environment? We've seen markets tanking slightly. I mean, no one likes risk and uncertainty. How do you see this playing out?
[00:04:18] Speaker C: Well, ultimately that's the challenge is that the decision makers who want certainty want some confidence that if they make a decision that the what their expectations are will be met. The bias obviously on part of any manager is to hesitate, say I'm not going to commit that capital or I'm not going to sign that deal until I know more because now the risk around it has been increased. Risk has a price and that obviously then has an impact back on the aggregate economy. If all businesses are holding back, if consumers are holding back even on purchases because of threatened tariffs, or if they're accelerating purchases on tariffs and then that pulls ahead growth now that maybe fades in the future, it has impacts on the economy that are unquestionable. And for some companies it's immediate and they do know what the impacts are going to be because Suddenly their supply lines have increased in price by some percentage, and that they have to take into account immediately in terms of their cost of production, their selling prices, their market competitiveness, especially if they're exporters. So in some cases, those decisions are being made for them very quickly. But when it's a changing landscape, it's very hard to keep up because you can't count on making that decision for five years. If, in fact, the tariffs on which you thought you were making that decision are going to be changed in a week or pulled back, which is, you know, we've seen precedent for that.
[00:05:31] Speaker B: If I'm being devil's advocate here, what are the potential positives? What does this administration see as the positives of tariffs? Because most people are looking at this as possibly inflationary. But is there the possibility of manufacturing being brought back to the U.S. does this allow tax cuts? Is that what we're thinking?
[00:05:52] Speaker C: As far as the ability to afford tax cuts? You know, at some level, clearly the US Government will be collecting more tariffs, which is then an import tax. So that's revenue from a different source than they had been obtaining it. And you could potentially offset that by reducing taxes in another amount. Whether those match amounts match up is perhaps a big question, but there's no question that that is a lot. There's some logic behind that and makes sense as far as bringing back US Manufacturing. If the tariffs are in place for a very long time and you're protecting certain industries through high tariff walls, you will have an incentive in the economy for those particular sectors to have more manufacturing domestically. It doesn't mean that the other sectors that depend on them or the suppliers would necessarily also move. And if you put up a tariff wall across all commodities, you know, yes, that would encourage some domestic production, but it will be offset by the losses of export sales as you have responsive tariffs on the part of other countries, which then make those US manufacturers less competitive, trying to sell to a world market that's much bigger outside of the borders of the US Than inside it.
[00:06:56] Speaker B: On a more general level, does a protectionist us, a US that's retreating back behind its borders, economically, geopolitically, doesn't this just leave vacuums for maybe for China, maybe for Russia, maybe for anybody else to fill, whether that's Latin America, whether that's Africa, doesn't that create opportunities for others?
[00:07:16] Speaker C: Well, there's clearly a response that happens to a vacuum. And from an economic perspective, if the US Makes that choice to put up tariff walls and then accept what will happen in terms of response from other countries that changes their competitive position. And other competitors, exporters in other countries will try very hard to capture those markets that previously had been US Markets for exports. So what you describe is very likely to happen in terms of a rebalancing across products, across industries, across countries around the world. It's not as if the rest of the world's going to stop trading because the US Chooses to be protectionist, though overall, because the US Is so important, an increase in protectionism and tariffs is likely to have some secondary impact packs where trade is reduced even between countries that are not involved directly in US Trade for certain commodities. Because of that, the repercussions of things like the increases of inputs and components in manufacturing that will raise prices globally as those impacts spread through the way supply chains that are so complex today are organized.
[00:08:18] Speaker B: Are there other costs in this? I mean, obviously, you put a tariff on something, things can get more expensive. Someone's paying whoever you, you know, people disagree on who's going to pay that, but someone pays. But then there's other costs for companies. We're already seeing a big increase in lobbying in Washington on behalf of various companies on maybe wanting trade exemptions. This wide open for corruption, isn't it?
[00:08:39] Speaker C: Well, I don't know about corruption, but certainly there is opportunity to have some people. If I'm a customs broker, freight forwarder that handles certain tariff responsibilities, suddenly perhaps I'm charging more for my services because now I have to monitor and make sure that those customs, those tariffs are paid where perh something moving under a free trade agreement before that wasn't an issue. So for my customer, perhaps I have more activity. And clearly all the people inside the beltway in Washington, D.C. that do things like lobby for waivers to get an exemption, such as we have seen in previous rounds of tariffs, even in the first Trump administration, there were waivers and there were exemptions. So it's very possible that some of those individuals are going to have more work to do and get paid more to actually try to represent people to obtain exceptions or changes to the blanket tariffs that are being imposed.
[00:09:26] Speaker B: So, yeah, maybe corruption is the wrong way, but that closeness to power becomes very, very important if you've got business interests to push.
[00:09:32] Speaker C: Right. You will not have the choice to not be engaged. It will be in your economic interest to try to get a waiver. Why would you not try to do that if it might be possible? So you'll find somebody that knows how to do that if your company hasn't done it itself before. And then you'll be spending money on something that you wouldn't have absent those tariffs being in place. And that means that, you know, that's that's also funding and capital in a company that's not going to something else.
[00:09:54] Speaker B: Paul Bingham, S and P Global Markets Intelligence thank you very much for joining me once more on the Freight Buyers Club.
[00:10:00] Speaker C: Thank you, Mike.
[00:10:03] Speaker A: We hope you enjoyed this episode of the Freight Buyers Club, produced in partnership with the demurco Express Group. Please subscribe and follow on your platform of choice or sign up for delivery to your inbox@the freightbuyersclub.com this podcast wouldn't have been possible without the fantastic editing of Karen Ball and Tom Matthews. And finally, thank you all for listening. The next episode will be with you soon.
