Drewry: Shipping Industry’s Benefits from US-China Trade War

Escalating trade hostilities between the US and China spells bad news for the Transpacific container trade but should also result in higher volumes of intermediate goods, according to shipping consultancy Drewry.

Potential losers in this trade war will be those countries that provide the raw materials and semi-finished goods to China that go into the re-export of the final products to the US. The US itself could suffer as China uses up some of its exports for re-exports, the consultancy explained.

China has developed its manufacturing capacity to such an extent that it barely needs inputs from the rest of the world to support its exports, which should limit the collateral damage.

Drewry noted that China’s hogging of production is partly responsible for the slowdown in world trade witnessed in the past few years and its ever-growing self-sufficiency diminishes the fears of the spill-over effects from the trade war on global container flows.

“This should be a fairly isolated affair with the Transpacific bearing the brunt, compensated to some degree by trade diversion.”

However, Drewy explained that this does not mean the end of China’s export dominance.

“While we do foresee some erosion of its market share in outbound container flows to the US, the sheer size of its export machine means that it cannot be replaced overnight. China was responsible for around one-third of all US finished goods imports last year, when measured in bilateral trade, twice as much as the rest of East Asia combined.”

Summarizing, Drewry said that some short-term disruption to the container market is expected as new trading links are developed, but further fragmentation of production would boost the need for shipping, assuming demand levels are sustained.

“For the foreseeable future China will remain the world’s container export hub, albeit a slightly smaller one.”