The shipping industry is unlikely to get a spike in demand from the US-China “Phase One” trade agreement, which has failed to spur volume growth in January 2020, when the effects of the coronavirus outbreak were still not felt, according to a new analysis from the Baltic and International Maritime Council (BIMCO).
Exports of the manufactured, agricultural and energy goods included in the deal were down 26% from January 2017, which serves as the base year for the agreement, said BIMCO.
The Phase One agreement was signed on January 15, 2020 to lower some US tariffs on imports from China, which in return has committed to increase its imports from the US.
The US$200-billion deal is divided over two years and across four sectors: manufacturing, agriculture, energy and services. Exports of these goods from the US to China are set to rise by $200 billion compared with levels in 2017.
“The Phase One agreement brought some relief to the shipping market as a further deterioration of the relationship between the US and China was avoided,” said Peter Sand, BIMCO’s chief shipping analyst.
“For the extra volumes to be met, exports in January needed to show strong growth. This failed to happen. In fact with the fall in volumes, January represented a backwards step from the starting line, rather than a strong start to the year, meaning even more ground has to be covered in the remaining months of the year,” Sand noted.
Based on the agreement, US exports of the manufactured goods should rise to $75.4 billion in 2020, up from $40.8 billion in 2019, representing an 86% growth rate. Agricultural exports needed to grow 126% to reach $33.4 billion in 2020 from $14.7 billion in 2019, while energy exports must grow 730% to meet the goal of $26.1 billion this year from just $3.1 billion last year.
But January 2020 was a disappointment, said BIMCO. Energy imports fell dramatically to just $25.7 million, less than 0.1% of the $26.1 billion commitment from China for the full year, and just under half of exports in January 2017, the level which has to be consistently beaten by quite a margin in every month this year.
US exports of the manufactured and agricultural goods under the deal saw a decline of 1.6% and 43.3%, respectively, in January 2020 compared to January 2017. Exports in January for both of these categories of goods were around 4% of the total exports needed if the commitments are to be met.
The low exports in January cannot be attributed to the coronavirus outbreak, as this had only a very limited impact on the Chinese economy in January and no effect on its trade with the US, said the report. The virus has, however, plagued exports in February, and will continue to do so in the coming months, even as China slowly returns to work.
“In reality, this means that exports in the first quarter of the year are unlikely to deliver any growth, let alone the high rates needed to meet the commitments in the agreement. It is highly unlikely that the next three quarters of the year will see exports on track to meet the target, let alone to make up for missing volumes in the first quarter,” said BIMCO.
“Developments across the globe since the agreement was signed in mid-January, from the coronavirus outbreak to the falling oil price have made it even less likely that China and the US will be able to live up to their commitments and thereby help boost demand for the shipping industry,” said Sand.
“If the agreement is to make sense, a revision may be needed when the dust has settled around the coronavirus disruptions and there is once again room to focus on trade policies.”
