Global geopolitics and policy making are playing their hand
through the consumption of soyabeans, washing machines and PIGS.
Yes, you heard it right.
The story began with the Trade with Trump strategy and has
seen US at loggerheads with most of its EXIM trade partners threating NAFTA and
incapacity of WTO to resolve global egos marred with Trump-o-nomics and Xinomics.
In July 2018, US slapped tariffs in Chinese goods ranging from
consumer goods and food products including tobacco, chemicals, and metals,
citing reasons for unfair market practices. The situation has seen escalation since the discussions of
product dumping and undercutting.
Currently, US is looking at impacting $1 - 3 Trillion of imports and in a wake to try and promote the local production and
growth. Let’s look at the some of the interesting commodities which
might have an economical global impact in terms of growth, innovation and food!
A steep 30% tariff on Solar panels is going to impact the already regressive agenda of renewable energy globally. China is the largest manufacturer of solar
panels and with the current 30% tariffs to be reduced to 15% after 4 years
might impact the uptick in renewable energy coming in from solar power.
Almost 75% of the solar panel installation in the US comes
from Asian countries and the tariffs are going to impact the innovation
investment proposals for the solar industry in the US and the world.
Washing machines has seen tariff pegged at 20- 50%, which has a
market of $5.1 Billion in US. Non US companies are holding a more than 50% of the market share because of cheaper and
affordable competition. Interestingly, the tariffs on steel and aluminium will be a double whammy for the segment as the pressure of cost is going to mount.
Reports highlight that China exported more than 22 million washing machine units to the US in tune of $3 Billion in 2017.
The companies have been warned earlier too and have started taking action to avoid the situation. LG is already building its first US facility in
Tennessee which would be operational by 2019. Samsung’s South Carolina facility
is already producing 1 Mn units starting this year. Eventually, the impact is expected pare down with US sales being bolstered up but the wound would sustain for the years to come.
Soyabeans make up to $14.2 Billion of the agri-exports to
China from the US. It’s the largest US goods exported to China. Interestingly,
this gap is made up by strong supply, as Brazil has harvested a bumper crop
this year. The soyabean futures prices have dropped by more than 18% and
continues to be a concern in wake of strong supply. China makes up for 1/3 of
the global demand for soyabeans as it uses the oilseed for its animal feed,
more specifically PIGS !
According to FAO, China produces 60% of the total pork
production of the world and 3/4 of the total meat consumption in China and by
2022, these numbers are going to rise by a minimum 50% upside. China imported
93.5 million tonnes of soybeans in 2016/17.
This calls for another stellar story another time but in wake of the
tariffs, it’s interesting to see how commodity markets and pricing respond the alternate
animal feeds such as canola and sunflower.
Policy makers hopefully keep this in mind, that, these alternatives have a shelf life and an
traditional history of standard production mean. This means that sudden overconsumption will lead to higher livestock input cost than sustainable pushing inflationary trends in the wind.
Alternatively, this will spur research and
innovation in animal fodder industry involving duckweed and algae, which will spill into newer foodstock manufacturing in world of gastronomy too (humans included).
Coming back to the trade war, Malaysia, Vietnam, Indonesia and too a certain extent India is turning out to be major location benefactors of the situation, as lot of manufacturing companies
are now moving production out of China and Hong Kong.
Tariffs on Steel and Aluminum are going to be a salvo not
directed at cheaper steel but at the trading partners of US. US is the highest
importer of steel, almost at 9% of global steel figures and top three steel
partners are Canada, Brazil and S. Korea.
The alleged ‘overcapacity’ stated by
Trump is an accusation for China, which it is trying to mitigate by making it
difficult for its steel trading allies.
Statistically speaking, the world has
an excess steel production and is going to increase its capacity ferociously in
a market which is going to experience marginal demand growth for the next 10 years. The only anomaly could be huge infra investment driving consumption in developing countries or crippling down of supply chain systems by invoking geopolitical manipulation of EXIM market.
Trump intention to protect American companies run a huge
chance of impacting the American production and margins, which were a result of
cheaper input cost from cheaper steel. This might end up impacting jobs to the
tune of more than a lakh workers across automobile manufacturing and
construction.
I feel that there is going to be inevitable impact from the
trade war but the damage from it is more in thought process and policy making
rather than $ values.
The major blow would be to the belief systems which
helped setup institutions such as WTO and other world bodies and the many regional international free
trade pacts and agreements spawned after the WWII.
The irreparable damage of germination of doubt and toeing the
international trade system has served the global trade for more than 7
decades, the shakeup of the belief systems would be a shattering thought.
Opinion : Thermal Power Energy Storage and Future Energy Series
In right earnest, hypothetically, if the trade war escalates and goes to a full blown global fallout, we would see the emergence of more bilateral and group trade agreements, moving away from pacts resulting from regional proximity to more common goal trade agreements between nations. Very interesting coalition would be in order. Here is me coming back to the fabric of reality now. :)
There might be some noticeable impact to the global GDP
growth, resulting from the fall in investment except the rearrangement and
shuffling of the tariffed goods from US to other countries. The commodity prices
will take a strong correction but eventually the demand-supply scenarios will
pan out. The impact on global commodity prices might be to the tune of a 20% on
a YoY scale at best.
The major blow would be the resultant of this war which might be a spiral down in
terms of investment and innovation in new risky ventures in energy products and smart planet and innovation around the efficiency of current products. This is destined to push the global economy and the larger corporations behind
by 10-15 years.
