Globalization will stutter but hopefully not reverse and a global recession avoided. Shipping will ride this wave and hopefully come out stronger in the process.
Trump followed through with his tarrif bonanza this week making good his pre-election vow to attempt redress trade flows and boost America's industrial and manufacturing base. Whilst most followers, outside of his inner cadre, would have assumed that any tarrif moves would be predicated on economic grounds it seems the underlying motive is elsewhere to be found. A sense of insecurity has gripped the administration and tarrifs are considered vital to boost USA industry as a backstop to their military defence. The markets have been warning that such a gambit will be inflationary for the US consumer and that, compounded by tit-for-tat moves from the other side, will have wider global implications. The US administation is hoping that the brunt of tarrifs will be borne by it's target in the form of a currency transfer leaving the U.S consumer unscathed however this is very likely to be just wishful. The field is not with one player but a multitude who will make their moves too in this dynamic trading environment.
Shipping is at the centre of global trade, some 90 % of it's volume is catered by sea transport, hence the market has been gripped by developments in international trade. The spot market is holding poise at a seasonally strong time of the year with anything forward looking such as shipping stocks and freight derivatives apprehensive of worse to come. Tarrifs across the board are bound to impact traded volumes as protectionism sets in. One factor of potential respite for bulkers is the outlook of a weaker dollar which usually acts inversely as an uplift to demand. Some cross currents in the mix as shipping adapts to the quirks of international trade.
Looking back at previous bouts of protectionism is not rozy. The Smoot-Hawley Act of 1930 increased tariffs on foreign imports to the U.S. by about 20%. Most countries responded in kind with severe disruption that perhaps was the most proximate cause of the Great Depression. Subsequent cases were all negative with global growth slowing down as a result of tarrifs. Fast forward, the USA of 2025 commands 25% of global GDP and a smaller 16% of global trade. Globalization is more entrenched than it's even been which would imply that reverberations from the likely trade war far reaching. On the other hand the larger tapestry of commerce offers trade easier fungibility as paths of less resistance are easier to come by. Globalization will stutter but hopefully not reverse and a global recession avoided. Shipping will ride this wave and hopefully come out stronger in the process.
Stock markets across the globe took big hits upon the 2nd April 'Liberation Day' proclamations with levels of financial anxiety as severe as in the early days of the Covid-19 outbreak. With declaration of counter tarrifs already appearing we expect back-and- front for some time before the dust starts settling and a new order take shape. Perhaps some retreat from the US administration aggressive campaign will come should the economy react as negatively as markets anticipate and should they receive some perceived 'wins' from this initiative. The jury is likely to be out for a while longer so nerves will be tested across land and sea.
Data source: Doric