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Issue 5 2019 - FBJNA From the Editor


The BOOM that may fizzle


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MATT WEIDNER Tel: + 1 610 486 6525 matt.weidner@fj-online.com


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EDITORIAL


KAREN THUERMER-EDITOR karen.thuermer@fbj-online.com CONTRIBUTING EDITORS: PETER BUXBAUM MARK CALDWELL HANK DONNELLY JOHN JETER AMANDA LOUDIN


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By Karen E. Thuermer


Soon Americans will be celebrating the 4th of July. Oh those “bombs bursting in air” represented by a loud and colorful display of fireworks. You’d better enjoy it this year. Next year the display might not be as spectacular.


Some locations may even cancel displays altogether due to their high cost. The reason: Trump’s trade wars with China. China is the No. 1 exporter of fireworks to the United States. The American


Pyrotechnics Association reports that today some 250 million pounds of fireworks are imported to the United States each year with nearly 95% of that coming from China. Last year, the industry saw $945 million in revenues from consumer spend on fireworks; $360 million from display fireworks. US Census Bureau figures indicate that from January 2019 through March 2019


the United States imported $117.95 million worth of fireworks. Those imported from China represented $109.91 million. Those coming from Hong Kong, the No. 2 market for US imported fireworks, represented $2.33 million for the same period. That leaves $5.71 million in imported fireworks coming from other markets around the world. While Trump has not yet imposed tariffs on Chinese-imported fireworks, the


products are on the list of 3,000 Chinese imports valued at $300 billion that could possibly be subjected to a 25% in tariffs. This is in addition to the $200 billion worth of Chinese goods imported into the US that were subject to the 25% tariff imposed in May. We all recall, Trump raised tariffs in May on certain goods from 10% to 25%. Throughout June, the US Trade Representative has been taking comments


from various companies regarding the impact they may feel as a result of the possible tariff increase. Fireworks industry executives, notably Phantom Fireworks, have been speaking out. Bill Weimer, vice president of Phantom Fireworks, has been reported by several


sources as saying that the proposed 25% tariff would be totally devastating to the fireworks industry. It could not only have a significant negative effect on how his company operates, the tariffs could ultimately impact how much consumers buy and pay for fireworks. Weimer told the Oakland Press: “Our problem is that it’s an impossibility


to get an alternate source of fireworks. We are stuck with China. If these tariffs are imposed, we have no choice but to continue dealing with China and pay the tariff. This tariff will not hurt China and it won’t cost them a nickel. They won’t miss a beat and will continue to sell fireworks to America. The tariff expense will ultimately trickle down to the consumers.” To backtrack, the goal of higher tariffs against Chinese goods imported into


the United States is to stop unfair trade practices that China has engaged in for decades, which contributed to a trade deficit of almost $420 billion in 2018. While the latest figures available from the US Commerce Department do not


indicate what impact the tariffs imposed in May have had on the deficit, figures from January 2019 to April 2019 – a timeframe while Trump was in conversation with China – reveals that imports from China to the US totaled $140,773 million, down $20,646 million or 12.79% from the same period in 2018 when the total was $161,419 million. Exports to China from January 2019 to April 2019 totaled $33,891 million, down $8,928 million, or 20.88%, from January 2019 to April 2019 figures of $42,819 million. How much tariffs on Chinese goods actually impacts the trade imbalance


is yet to be seen. The bigger concern is to what degree will these tariffs hurt US companies and their employees. China has a long history of unfair trade practices. Of particular concern has been China’s practices relating to intellectual property rights, innovation, and technology development. These unfair trade practices and other actions by China have cost the United States and its businesses hundreds of billions of dollars every year. But is a slash and burn approach best? On another note, those in the shipping industry should be concerned over the


recent and sudden move by the Trump Administration to tie the threat of tariffs on Mexico to illegal immigration flows. While immigration remains a critical issue,


using tariffs to force Mexico to play a bigger role in halting the flow of illegal immigrants across the Mexico-US border is a dangerous precedent. For one, it creates uncertainly in economic markets and supply chains that have worked well since 1994 under the North American Free Trade Agreement (NAFTA). It also impacts company decisions regarding trade partner relationships and foreign direct investment. While fears that Trump’s tariff threat on Mexico would blow up the United


States-Mexico-Canada Agreement (USMCA) did not materialize, the mindset that created this situation still exists. For one, Trump held tight that the new tariffs would encourage companies in Mexico to “start moving back to the United States to make their products and goods.” Seems that not long ago the buzz was about the great benefits of “near-


shoring” versus “off-shoring.” And didn’t companies set up manufacturing in Mexico because of costs particularly in labor-intensive manufacturing exports like transport equipment and parts, but also in technology and electronics manufacturing? Remember the benefits of maquilladores? The rising cost of labor in China may have led to a re-shoring trend for US


manufacturers. But US wages remain higher than China’s, therefore, making our southern neighbor attractive for manufacturing – say nothing of the fact productivity rates in Mexico have improved vastly. Which comes back to Trump’s demands for a new 5% tariff on all goods from


Mexico that would have begun on June 10, then automatically jump to 10% on July 1, then in 5-point increments at the start of each subsequent month until reaching 25% on October 1. Talk about blind siding corporate and supply chains. Executives responsible for the economic health of their corporations don’t make hasty decisions operating on the seat of their pants. Torsten Slok, chief economist at Deutsche Bank Securities, reported to the


Washington Post that two-thirds of US imports from Mexico are intracompany trade – parts that an American company uses to produce another product. “Trade with Mexico is basically all about the supply chain, which essentially is all about cars,” he said.


///NEWS


Freight Business Journal North America - FBJNA reaches out to the decision makers and influencers involved in international freight transport and logistics. FBJNA boasts the most informative and authoritative source of information with unrivalled in depth knowledge of the rapidly changing freight business environment. Our complimentary website www.fbjna. com provides the most up to date news and analysis from within the international shipping industry.


If you have any stories or letters which should be of interest or any feedback on FBJNA, please contact our editor Karen Thuermer - karen.thuermer@fbj-online.com


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