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The Trade Numerologist: New US Tariffs Target Transshipment

29 January 2018 John Miller

Like a hungry dog finally taking a bite of a plate of leftovers he’d been eyeing, the Trump administration in January made its most protectionist move yet, imposing tariffs on imports of large home washing machines and solar panels.

The “America First” duties, Trump said, would “demonstrate to the world that the United States will not be taken advantage of anymore.” The administration leaned on a relic of the 1970s, the so-called “safeguard” clause, which had last been employed by George W. Bush in 2002 to impose tariffs on steel imports, a decision later condemned by the World Trade Organization.

Exporters immediately voiced their concerns, raising the specter of a trade war. China said the tariffs were an “abuse”. Mexico said it would “use all legal resources” to fight back.

What makes really these tariffs unusual is how broad they are: They include few exceptions, making it difficult for Asian exporters to “transship”, or launder their goods via third countries to avoid tariffs. Although they targeted Chinese solar panels and South Korean washing machines, they’ll also hit imports from Latin America and Europe.

Call these duties the transshipment tariffs.

The US already had tariffs in place. These, the Trump administration decided, weren’t enough, and didn’t protect against transshipment, the bugaboo of contemporary trade ministries.

For example, the US in 2016 started imposing tariffs on Chinese washing machines, knocking imports from the country down to $28 million over the first 11 months of 2017, from $675.4 million over the same time period in 2016, according to data from IHS’ Global Trade Atlas. At the same time, imports from Vietnam, Thailand and South Korea boomed, partly because Chinese exporters rerouted their machines.

US imports of large washing machines, first 11 months of 2017

Vietnam $535.9 million (+324%)
Thailand $383.3 million (+216%)
South Korea $203 million (+103%)
Mexico $144 million (-12%)
China $28 million (-96%)
Italy $22 million (+305%)
Sweden $19.3 million (-1.6%)
Spain $18.8 million (+34%)
Czech Republic $13.5 million (+37%)
Germany $10.7 million (-34%)

Now the US, in addition to existing duties, will levy a 20% tariff on imports of the first 1.2 million home washing machines, then 50% after that. It’s also imposing a tariff of 50% on imported washer parts, to prevent companies from sneaking almost-finished washing machines into the country.

US manufacturer Whirlpool, which makes machines at a factory in Ohio that employs over 3,000, successfully lobbied for the tariffs under the so-called “safeguard” clause. The company has complained it’s getting unfairly punished by importers Samsung and LG.

In a statement, LG said the new tariffs were “a textbook case about how certain companies can game the process to use trade laws to try to accomplish what they can’t accomplish in the marketplace.”

The tariffs on solar panels were requested by Suniva and SolarWorld Americas, two companies with plants in the US.

As in the case of washing machines, the US had already imposed duties on imports from China starting in 2011, but was hit with new shipments from Asian countries including Malaysia, South Korea and Vietnam.

Because of a fall in prices, the total value of US solar panel and cell imports fell to $6.7 billion over the first 11 months of 2017, from $10.2 billion over the same time period in 2016, so it’s best to look at US imports by number of units.

Top suppliers of solar panels and cells to the US, first 11 months of 2017, by units7

China 4.7 billion units (+20.2%)
Japan 3.7 billion units (+21.7%)
Malaysia 1.2 billion units (-23.7%)
Taiwan 367.7 million units (+18%)
Thailand 210.9 million units (-2%)
South Korea 196.8 million units (+4%)
Philippines 124 million units (+19.2%)
Singapore 62 million units (-51%)
Germany 35.8 million units (-59%)
Mexico 34.3 million units (-16%)
Vietnam 23 million units (+148.3%)

Chinese exports of solar panels to the US increased in 2017, partly because companies were expecting duties and rushed in product. China, by the far the biggest exporter of solar panels, is likely to take a hit in the US, but it plenty of other growing markets.

Top suppliers of solar panels and cells to the US, first 11 months of 2017, by units7

India $3.2 billion (+38%)
Japan $2.1 billion (-25%)
South Korea $948.2 million (+0.4%)
US $745.4 million (+50%)
Australia $598.9 million (+77%)
Mexico $518.3 million (+473%)
Brazil $402.6 million (+48%)
Taiwan $309 million (-37%)
Pakistan $294.3 million (-6%)
Germany $275.3 million (-15%)

If solar panel makers are excited about any market, it should be that of India, a country of 1.3 billion which has limited fossil fuel resources, and a massive need for new energy to supply hundreds of millions of citizens joining the global middle class.

India solar panel imports, first 10 months

2012: $592.8 million
2013: $965.4 million
2014: $633.5 million
2015: $1.5 billion
2016: $2.4 billion
2017: $3.8 billion

Meanwhile, China has given every indication it will keep making solar panels, ramping up exports of electronic grade silicon, the main raw material in solar panels.

Chinese imports of electronic grade silicon, first 11 months

2013: 72.8 million kg
2014: 93.3 million kg
2015: 107.1 million kg
2016: 127.7 million kg
2017: 147.3 million kg

In the first 11 months of 2017, China was also the world’s top importer of solar panels and cells. Imports from the US, its seventh biggest supplier, increased 27% to $140.6 million.

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.

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