2017 Outlook: 7 Trade-Sensitive Industries to Watch — Panjiva


2017 Outlook: 7 Trade-Sensitive Industries to Watch

Ags - Grains/Beans 206 Ags - Meat/Dairy 162 China 2150 Cons. Discr. - Apparel 285 Cons. Discr. - Autos 778 Cons. Discr. - Retailing 220 Consumer Staples 500 Energy - Renewables 114 Global 930 Industrials - Aero/Defense 153 Info Tech - Comms Equip 151 Info Tech - Tech Hardware 496 Outlook 58 Research Recaps 25 U.S. 3910 USMCA 400

1.Autos (Sacrificed) for the People

The automotive industry has a highly integrated cross-border supply chain. This arguably makes it the most trade-sensitive sector with regards to shifting policies during 2017. These could take the form of general trade area renegotiations – such as NAFTA as discussed in Panjiva research of January 3 – or more specific issues such as tax-targeting alluded to in a recent tweet by President-elect Trump. The impact of restrictive policies can already be seen in Ford’s decision to not proceed with a new small-car factory in Mexico.

Panjiva analysis shows significant differences in the rate of export development globally. Exports of autos and parts from the U.S. and South Korea appear to be in steady decline, with shipments for the 12 months to November 30 down 1.8% and 16.8% respectively vs. 2013. Undoubtedly Canada (41.3% higher) and Mexico (4.0%) have grown as part of their NAFTA-centric supply chain positions.

However, unravelling these is likely to increase costs (either via taxes and tariffs or higher costs-of-production), which may be passed onto consumers. Finally, growth from China is targeted at emerging markets, indicating export-led policies may be more productive than domestic protectionism.



Chart compares long term (x-axis) to near term (y-axis) export growth based on customs and government data in units for Mexico and Japan, dollars for the U.S., China, Brazil, South Korea and Canada and in euros for Germany. Source: Panjiva

2.Toy Time for Tariffs

The toy industry has a truly global supply chain, and yet has not been widely mentioned in discussions about trade policy. It may become a focus area given its relative importance both in U.S. imports and Chinese exports, as discussed in Panjiva research of December 22. The relationship is asymmetric, however. Panjiva data shows U.S. imports of toys from China represented 86.3% of the total in the 12 months to October 31 after they grew 3.1% in the 4 months to October 31 (the pre-holiday import period) vs. 1.4% for all imports from all countries.

By comparison China’s global exports increased 14.2% over the same period, driven by a 20.6% increase in shipments to the European Union. Chinese shippers already appear to be diversifying their customer base – the U.S. fell to 32.5% of toy exports from China over the 12 months to October 31 from 33.8% a year earlier.



Upper panel segments Chinese exports of toys (HS 9503) by destination country or region. Lower panel compares U.S. import data (left axis) to Chinese export data (right axis). Source: Panjiva

3.Dialling Up Tariffs that Don’t Compute

The availability of high quality, low cost consumer electronics is largely the result of global trade facilitating Asia-based supply chains’ connectivity with customers in North America and Europe. This hasn’t just been about China, with Panjiva research having identified that economic growth in Malaysia, the Philippines, South Korea and Taiwan have all been influenced significantly by the consumer products themselves or components such as semiconductors.

That said, one potential development in 2017 is the risk of general import tariffs levied against China by the incoming U.S. administration, as discussed in Panjiva research of January 3. Indeed, President-elect Trump has already targeted Apple specifically in his comments before the elections.

China is already facing falling exports of phones and laptops – partly due to model release performance and partly due to shifting production to cheaper countries –  and will be keen to avoid further declines. Panjiva data shows Chinese exports of phones and computers to the U.S. reached a combined $58.3 billion in the 12 months to October 31, which was 14.3% lower than the same period a year earlier. As has been seen in other industries, such as renewables discussed below, where trade barriers are erected manufacturers will often just move their facilities to other countries in Asia in response. Jobs won’t necessarily come back to the U.S.



Upper panel segments China’s exports of phones and computers by destination country or region. Lower panel compares performance of U.S.-bound exports specifically. Source: Panjiva

4.Soft Commodities, Hard Bargains

Most countries’ agricultural industries are highly reliant on overseas customers, and face significant tariff and nontariff barriers to free trade. As a sector It is likely to feature a broad range of bilateral skirmishes as well as broader multilateral cases. The latter has been typified in the complaint by the U.S. around Chinese agricultural imports, as discussed in Panjiva research of December 16. The review will likely be caught up in broader U.S.-China trade discussions, and will impact upon most grain suppliers.

Panjiva data shows U.S. grain exports have been growing, but this may make them vulnerable to trade reprisals. Global exports by the U.S. of wheat jumped 25.4% on a year earlier, while corn increased 15.8% on a year earlier in the 12 months to October 31, while rice expanded 5.1%. The incoming administration also faces early tests in a battle with Europe on beef exports and will need to decide whether to offer General System of Preferences status to Argentina, both of which were recently initiated by the outgoing U.S. trade representative.



Chart shows change in past 12 months to October 31 vs. the same period a year earlier and calendar 2013 for corn, rice and wheat exports segmented by country. Bubble size shows country’s proportion of U.S. exports of the grain concerned. Source: Panjiva

5.Solar (Trade Disputes) Flare

As already identified in Panjiva research of January 3, a revived Environmental Goods Agreement could be a major, multilateral trade deal success for 2017. While China was arguably the main protagonist in its failure in 2016 – and therefore will need to be a major part of its renovation – a large part of the change in global demand for renewable energy equipment in 2016 and potentially in 2017 will be in the U.S. Europe likely remains a closed market for Chinese manufacturers.

Detailed trade investigations in the U.S. in 2012, combined with a search for lower cost production centers, led Chinese manufacturers including Trina Solar and Jinko Solar to shift their production centers to Vietnam, Panjiva data shows. A further evolution in the U.S. is due in 2017. The U.S. International Court of Trade ordered the Department of Commerce to review its December 2014 countervailing duty decisions against Chinese solar panel manufacturers. Additionally, the energy policies of President-elect Trump appear to favor traditional sources over renewables.



Left hand axis segments total imports of solar power equipment by country of origin, right hand axis shows total imports to U.S. Source: Panjiva

6.Making Ammo Great Again

A stand-out feature of U.S. imports in 2016 was shipments of weapons and ammunition for non-military uses. A spike in imports of ammunition in November meant that the U.S. imported 18,890 tons in 2016 overall, Panjiva data shows on a preliminary basis, up 113.6% on the previous years. Imports of weapons and parts increased 8.5% to over 580 TEUs in 2016 overall.

The outlook for 2017 will in part depend on the weapon legislation measures taken by the incoming administration. During the campaign President-elect Trump proposed a national right-to-carry and reduced intervention in the types of weapons that can be owned. More detailed policy has not been forthcoming since then, but it is worth noting that NICS data for background checks showed a 16.4% drop in December on a year earlier. That was the first drop since April 2015.



Upper panel shows data for weapons and parts in TEUs, ammunition in metric tons. Lower panel shows year over year change in NICS data for background checks Source: Panjiva

7.Apparel Apps vs. Cost of Clothes

The concept of fast-fashion – using e-commerce and airfreight to cut design-to-rack times – has been an ongoing focus for the apparel industry. Its impact has yet to be seen in the mainstream trade data, however. Over the past 12 months the approximate volume of apparel imports to the U.S. (value of imports according to Panjiva data adjusted for Bureau of Labor Statistics pricing) fell 4.1%, but seaborne shipments fell just 2.2%.

Indeed, looking on a monthly, year-over-year basis seaborne imports ‘outperformed’ total volumes (and therefore other modes) in 41 out of 82 months. The analysis is far from perfect – it measures volumes by mode rather than values – but it does suggest that cost of shipping remains a major component of mainstream apparel purchasing decisions. As an aside, with 35% of U.S. apparel imports coming from China and 4.9% from NAFTA over the past 12 months there is a significant exposure to broad tariff measures from the incoming administration.



Upper panel indexes based on seaborne imports, with total volumes based on value of imports less BLS data for apparel CPI Source: Panjiva

PANJIVA RESEARCH is a service provided by Panjiva, Inc. ("Panjiva") to relevant global subscribers, and are deemed to be Panjiva "Services" subject to the Panjiva Terms & Conditions of Use. Information contained within or made available via the Services is for informational purposes only and nothing in the Services shall constitute or be construed as an offering of financial instruments, or as investment advice or recommendations by Panjiva, Inc. or its affiliates of an investment strategy or whether to "buy", "sell" or "hold" an investment. The Services may include views and commentary about customers of Panjiva. No aspect of the Services is based on consideration of your individual circumstances, and you should determine on your own whether you agree with the information contained within or made available via the Services. Employees involved in Panjiva Research may hold positions in securities analyzed or discussed in the Services. Panjiva does not make any express or implied warranties, representations, endorsements or conditions with respect to the Services and the information contained within or made available via the Services, including without limitation, warranties as to the usefulness, completeness, accuracy, currentness, reliability or sufficiency of any information (including, without limitation, conclusions, statements, opinions, estimates, forecasts or projections of any kind) and expressly disclaims any implied warranties. Neither this disclaimer nor any of its contents may be forwarded or redistributed without the prior written consent of Panjiva. © 2020 S&P Global. All Rights Reserved.