The US trade war with China has been filled with broken promises and over-the-top exultation. But when you look at the flow of trade, the volumes of the containers, cargo and tankers have been telling a different story.
Trade flows should be considered the tea leaves foreshadowing the outcome of the trade-war negotiations.
From soybeans to energy, US President Donald Trump has said on the world stage countless times that China needs the US. But the flows of trade do not match the rhetoric.
The importing countries supplying China with its commodities and products are a telltale sign of just how much China does not need the US.
On the commodity front, China has increased its energy ties with Qatar and Australia to 64% over the past two years.
Before the trade war, China made up 16% on a trailing 12-month basis of US LNG exports.
Fast forward to August this year and that volume has plummeted to 1.7%. Crude has suffered even more. Prior to the trade war, US imports on a trailing 12-month basis to China accounted for 20%. In August, those crude imports crashed to 1.2%.
Stalling investment
Memorandums of understanding (MOUs) have turned into worthless pieces of paper.
The $18bn, 20-year Cheniere/Sinopec MOU is contingent on a trade deal. These MOUs, if followed through, help the flow of trade because that money creates the future infrastructure needed to fulfil such LNG orders.
Instead, China is focused on working with other countries on its Belt and Road Initiative. These unfulfilled deals have shifted the flows of trade away from the US to other countries.
In agriculture, the world of shipping has watched Brazil and Argentina pursue great volumes of production and increase their imports into China.
Shipping is nimble and a faithful servant of supply and demand. New currents have been created by the tariffs
Lori Ann LaRocco
“Acreage stays forever, it never goes back,” said Derek Haigwood, chairman of the US Soybean Export Council and a soybean farmer from Arkansas. “Even if the trade war is solved tomorrow, those acres are there forever.”
Brazil’s soybean acreage augmentation to supply more soybeans to China, as well as China’s relocation of some of its own farmers to Russia to plant soybean crops, are just two examples of Beijing's trade expansion, which will alter the flow of trade in the end.
Bottom line: if trade discussions were really progressing, US exports to China would be ticking up, not down.
The trade gap should be narrowing, not expanding. The beauty of measuring trade negotiations by the volume of goods being transported through the plumbing of maritime is that it is not political.
Data speak
There is no posturing or spin. The data speaks for itself. Is a country buying like it promised?
Are products or commodities being silently boycotted? Did the country in question find new nations to trade with, in lieu of the country it is in negotiations with?
The answers to those questions, and the truth of a trading partner’s good will, are in the trade data.
The winners and losers of the trade war are also in that data. Deciding who is a winner or loser is in the political agenda of the countries involved in the trade war.
Shipping is nimble and a faithful servant of supply and demand. New currents have been created by the tariffs.
Based on the tea leaves of the changes we have seen, the flow of trade will never go back to what it once was. There is no reason for it to.
China has shown that once this trade war is over, it can pick up commodities and product elsewhere. Sure, China might buy from the US a little more, but not at the volumes it once did.
Lori Ann LaRocco is senior editor of guests at CNBC and the author of Trade War: Containers Don’t Lie, Navigating the Bluster (Marine Money Inc, 2019)
