Container freight rates from China to Los Angeles jumped by 60 percent in May, reaching their highest level in two years. This surge was driven by traders’ rush to execute orders from the United States before increased tariffs take effect on July 1, 2024. Merchant shipping rates between China and the United States have jumped by approximately 200 percent so far this year, following increased demand of containers and ships. In May 2024, Washington announced tariffs on US$18 billion of Chinese goods, including electric vehicles, battery parts, and solar cells.
According to reports, container rates were quoted at US$5,390 for a 40-foot container towards the end of May 2024 in Shanghai, a substantial increase from US$3,371 for a 40-foot container in the beginning of the month. By the end of December 2023, container freight rates on the routes from Shanghai to Los Angeles were reported at US$1,985 for a 40-foot container.
Interestingly, the Shanghai Containerised Freight Index rose by 13 percent last week to 3044.77, beaching the psychological barrier of 3000-level for the first time since August 2022. The cost of shipping a 20-foot container from Shanghai to Europe is over US$7,000, an increase of about US1,000 from a month ago. Reports said that the growth momentum may continue going forward due to increasing booking of vessels but for the United States and Europe to execute orders.
| Container freight rate from Shanghai to Los Angles |
| Date of quotes | Rate (US$/40-foot container) |
| May 30, 2024 | 5,390 |
| May 23, 2024 | 5,277 |
| May 16, 2024 | 4,476 |
| May 2, 2024 | 3,371 |
| April 25, 2024 | 3,615 |
| Mar 28, 2024 | 3,825 |
| Feb 15, 2024 | 4,754 |
| Jan 25, 2024 | 4,344 |
| Jan 18, 2024 | 3,860 |
| Dec 14, 2023 | 1,985 |
Sources: Industry, and Polymerupdate Research
Container shortageShippers are currently facing a substantial shortage of containers due to increased lead time. Traffic congestion at ports in the United States has been another factor, multiplying problems for shipping companies. Over and above, Ship owners rerouted merchant ships to avoid transportation through the Red Sea and Suez Canals, extending thereby the voyage time by at least two weeks. While coming back, these empty vessels travel through an alternative to the Red Sea and Suez Canal routes, thus increasing the downward journey by another two weeks.
It is worth mentioning here that the Houthis pirates are backed by Iran to disrupt trade and eventually intensify rivalry with Saudi Arabia. Yemen’s Iran-backed Houthis rebels stepped up their strikes on merchant ships in the Red Sea, which they say are revenge against Israel’s military offensive in Gaza, The Houthis attacks have forced some of the world’s biggest shipping and oil companies to suspend transit through one of the world’s most important maritime trade routes, which could potentially cause a shock to the global economy.
Reports believe that Houthis have been armed and trained in Iran. The fear intensified that increasing the Houthis attacks could potentially escalate regional conflict in the Middle East. Both the United States and the United Kingdom launched strikes against multiple Houthi targets in Yemen after the Biden administration and its allies warned the group to bear the consequences of its repeated attacks on global merchant ships.
| List of Chinese goods under additional tariffs in the United States |
| Product | From (%) | To (%) | When |
| Steel and aluminium | 0-7.5 | 25 | 2024 |
| Semiconductors | 25 | 50 | 2025 |
| Electric vehicles | 25 | 100 | 2024 |
| EV batteries | 7.5 | 25 | 2024 |
| Lithium iron non-EV batteries | 7.5 | 25 | 2026 |
| Battery parts | 7.5 | 25 | 2024 |
| Batteries – critical materials: natural graphite and permanent magnets | 0 | 25 | 2026 |
| Batteries – critical materials: certain other critical materials | 0 | 25 | 2024 |
| Solar cells (whether assembled into modules) | | | |
| Solar cells (whether assembled into modules) | 25 | 50 | 2024 |
| Ship-to-Shore cranes | 0 | 25 | 2024 |
| Medical products – Syringes and needles | 0 | 50 | 2024 |
| Certain personal protective equipment (PPE) e.g. respirators and face masks | 0-7.5 | 25 | 2024 |
| Rubber medical and survival gloves | 7.5 | 25 | 2026 |
Sources: United States, and Polymerupdate Research
US tax levy on Chinese goodsThe bilateral trade dispute between the United States and China is entering a new round after US President Biden announced higher tariffs on Chinese imports worth US$18 billion, which are to come into force between 2024 and 2026. The existing laws permit, the United States policymakers to impose trade sanctions if a trading partner violates the United States trade agreements or engages in acts that are 'unjustifiable' or 'unreasonable' and burden US commerce.
The increase in tariffs follows a four-year review which recommends that tariffs on Chinese products introduced on July 6, 2018, and August 23, 2018, should remain in place, ranging from 7.5 percent to 25 percent on Chinese imports worth some US$370 billion. Overall, the report concludes that while the United States tariffs have been an effective tool in changing some of China’s trade policies, these policies are still a burden on the United States Department of Commerce.
Regarding the effects on the United States economy, the 2018-2019 tariffs did impact United States aggregate economic welfare and real incomes slightly negatively due to less trade with China, while raising prices slightly, on average by 0.4 percent each year. Manufacturing employment or wages did not increase, while investment growth was slightly subdued in the short run. However, the United States production did increase across industries most directly affected by the tariffs, on average by US$25.6 billion between 2018 and 2021.
| Change in total US trade between 2023 and 2027 (%) |
| Country/Region | Export to | Import from |
| European Union | 3.6 | 2.4 |
| Mexico | 0.5 | 2.1 |
| Vietnam | 0.0 | 1.7 |
| Taiwan | 0.5 | 1.0 |
| Canada | (-)0.8 | 0.9 |
| South Korea | 0.1 | 0.7 |
| India | 0.3 | 0.6 |
| Thailand | 0.1 | 0.5 |
| Japan | (-)0.6 | (-)1.1 |
| China | (-)1.1 | (-)7.7 |
Sources: United States, and Polymerupdate Research
Tariff on ‘strategic’ sectorsProducts across seven sectors under the additional tariffs regime are classified as ‘strategic’. These sectors are understood to have been affected by higher Chinese dumping thereby causing injury to the United States manufacturers. However, in order not to damage national solar manufacturing, certain solar manufacturing equipment will be temporarily excluded from higher tariffs (19 items), while over 300 machinery products used in domestic manufacturing are proposed to be included in the Machinery Exclusion Process.
According to a study conducted by ING Economics, “The tariff increases reflect the United States’ priority for onshore strategic technologies and manufacturing. The trade tension between the United States and China will continue regardless of the results of the elections in November. The tariffs on electric vehicles (EVs) may have a somewhat moderate impact on the United States EV market, as Chinese carmakers accounted for less than 5 percent of the EVs sold in the United States last year.”
But many of the remaining tariffs, such as those on lithium-ion batteries, critical minerals, and semiconductors, could have a much larger impact on Chinese exports and the United States clean energy market, with possible repercussions elsewhere. Less competition in the United States could strengthen domestic supply chains, but questions remain as to how fast these supply chains can be built up and how fast cost reductions will be for certain technologies.
Investigation underway in EuropeThe United States is not alone to act on China’s unfair trade practices. The US government official had recently visited China to apprise the President Xi Jinping administration in China about the negative impact of cheap Chinese imports into the United States. However, President Biden isn’t alone in his view on unfair trade practices by China. The fear that Chinese electric vehicles could take market share from European producers triggered an intense debate last year over whether to impose additional tariffs in Europe.
In October 2023, the European Union Commission launched a formal investigation into whether Chinese companies are benefiting from illegal subsidies given the surge in low-priced EV imports from China into the EU. Any provisional anti-subsidy duties could be imposed nine months after initiation but no later than 13 months. By November this year, at the latest, final action must be taken. Currently, the Chinese car manufacturers BYD, SAIC, and Geely are under scrutiny, with the EV able to decide respective tariffs per producer.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
