Unlock the White House Watch newsletter for free
Your guide to what the 2024 US election means for Washington and the world
The best supposition I’ve heard for how The Atlantic editor-in-chief Jeffrey Goldberg was added to the Houthi-bombing Signal messaging group was his initials getting him mistaken for Jamieson Greer, the US trade representative. It would be somewhat ironic if Goldberg’s presence resulted from an attempt to loop in the US official responsible for the attack’s supposed goal of easing the world trade system. It’s not in the top five or even 10 bad things about Signalgate, but it’s highly ambitious to label as a trade-facilitating measure some scattered assaults on a militant group whose blocks on Red Sea container shipping since late 2023 have manifestly failed to stop global freight. Likewise, trying to stick a vaguely defined “Europe” with the bill.
In the meantime, even before the extraordinarily destructive auto tariffs Trump announced on Wednesday, the US is posing an actual new threat to the world trading system in the form of fees on Chinese ships calling at US ports. It’s an initiative originating with Joe Biden’s administration, whose role in blazing a wrong-headed trail for Donald Trump to follow should be more widely recognised. The fees are designed to revive US shipbuilding but are more likely simply to raise the price of imports to the US and weaken yet more the country’s economy.
The Houthi attacks on shipping were, of course, genuinely worrying, the first time for decades that a major sea route has been severely constricted by the action of militants rather than uncoordinated acts of piracy. Global freight rates more than doubled inside a few weeks. Contrary to vice-president JD Vance’s assertion that the closure of Suez affected almost entirely European trade, world container shipping is sufficiently connected that a capacity shortage on one route increases costs everywhere.
But, as with many shocks, the global trading system adjusted. Freight rates partially fell back. Container vessels have been redirected round the southern tip of Africa, increasing travel times and costs but not seriously affecting world goods commerce, which has held up well.
Shipping companies and their clients have assessed the risks of using the Suez route and adjusted accordingly. No one really thinks the Houthis are going to be cleared out by a few air strikes. The Biden administration failed to stop their control of the Red Sea despite multiple attacks with support from European allies, especially the UK. Saudi Arabia has intermittently pounded them with bombardments since 2015 but has not dislodged them from Yemen.
The Houthis have set up a system of extorting payments from ships for passage. The amount of money raised is disputed, but it’s a nice example of the distinction in economic theory between “stationary bandits”, who exact calibrated bribes to maximise income rather than deterring trade altogether, and “roving bandits” who simply loot everything they can. A fixed and predictable bribe paid to a stationary bandit simply becomes a tax, and companies are used to factoring those into their business calculations.
Joe Kramek, head of the World Shipping Council, told me: “Our members are assessing the Red Sea situation according to their individual circumstances on a daily basis, but most are still choosing to go around the continent of Africa, because, as we can see, the security situation isn’t stable.” The French shipping group CMA CGM recently announced a limited service through the Suez Canal, but the situation is very far from normal.
Global freight rates shot up again last spring and summer, but shipping industry experts say that appears to have been related to companies globally building inventories to insure against future shocks rather than any fresh news out of the Red Sea. They have since fallen back again, and as Kramek points out, around 80 per cent of global shipping takes place under long-term freight contracts, so dramatic shortlived spikes in container rates have a muted impact on costs. World shipping and ports also managed to cope with a surge of trade earlier this year to get deliveries done before any Trump tariffs were imposed.
Kramek’s more immediate concern, as he testified at a hearing this week, is the administration’s plan for a fee of up to $1mn on calls at US ports for Chinese shipping lines and shipping companies that have commissioned vessels from Chinese shipyards and up to $1.5mn for ships built in China. For a visit to the US with six port calls, the WSC reckons this could add $6,350 to the cost of a container, more than twice the combined current spot rates for the Rotterdam-New York route.
However, the time lag involved in constructing vessels and the possibility of shuffling Chinese vessels on to different routes surely mean the likelihood that port fees will make a material difference to the relative returns of shipbuilding in the US and China is minimal.
It will take time and money to revive US shipbuilding, and burdening shipping with extra costs, even if the WSC’s calculations are discounted as coming from a vested interest, will increase upward pressure on US input and consumer prices without contributing much to the cause. It’s a counter-productive quick fix from an administration that reaches for protectionist tools without any thought to their wider consequences. The auto industry is bracing for a much faster and more catastrophic imposition of barriers, and no one needs accidentally to be added to a “trade & tariffs” Signal messaging group to work that out.
Source link
