The current dynamism of trans-Pacific trade is benefiting specific products and certain countries. While some factors are cyclical, a more structural transformation of the supply chain is also underway.
Rising ocean freight rates, fuelled by restocking and geopolitical factors, are currently making headlines in the logistics sector. Which products are driving up demand, and from which countries? This article delves into the transpacific trade patterns over the first four months to help identify how trade flow will evolve in the second half of 2024.
Buoyant Eastbound Transpacific Trade
In the first four months of 2024, the growth of Asian imports to the US outpaced the growth of US imports globally in both volume and value (Figure 1). The Port of Los Angeles and the Port of Long Beach– the primary US gateways for Asian flow– both recorded double-digit increases in container traffic during this period, reflecting an animated eastbound transpacific trade.
While the volume of US imports (kg) from all its Asian trade partners showed significant growth, the performances in value tems were varied. Strong growth was recorded in US imports from South Korea, Taiwan, and ASEAN – especially Vietnam and Thailand. In particular, Taiwanese and South Korean exports to the US both grew by around 20%. In contrast, Chinese exports to the US declined – the only one among its major Asian trade partners to do so[1]. As a result, the Chinese share in US import value further contracted, which may denote an ongoing diversification of the US supply chain.
Figure 1 - Data Source: US Census Bureau
The types of products imported from Asia to the United States reflect a fairly mixed demand, driven more by developments in technology or by public policies that stimulate certain areas than by a strong recovery in final consumption. This mirrors the overall US imports pattern between January and April in 2024 (Figure 2).
Figure 2 - Data Source: US Census Bureau
Computer hardware, automotive – vehicles and parts– and pharmaceutical sectors were the three powerhouses of US imports (in value) during this period. The rapid development of AI since 2023 largely benefited Taiwanese exports of high-performance computer hardware. In the first quarter, the exports in this sector from Taiwan to the US nearly doubled their trade volume[2], making the US Taiwan’s largest importer for the first time since 2003.
The legal loophole in the so-called Inflation Reduction Act (IRA) concerning leased vehicles continues to underpin Korean and Japanese electric vehicles (EV) exports, which constituted 45% of US EV imports (in value) in the first four months of 2024. Leased EVs are eligible for financial aid programs without having to meet the same requirements as vehicles for sale in terms of local content requirements. Consequentially, EV leasing offers greater affordability and more choice of models.
ASEAN has also benefited from the IRA. The exemption of tariffs on ASEAN solar panels (up until June 2024) resulted in significant stockpiling activity of this product in the first four months of 2024, with a 24% year-on-year growth and 150% increase compared to 2022.
In comparison, imports of consumer products grew only modestly, with the exception of the pharmaceutical sector. Indeed, US imports of typical consumer products from Asia were glowing, such as apparel, furniture, and toys, compared to 2023. However, both import volume and value remained well below the levels seen in 2022[3]. Consumer sentiment continued to remain below pre-pandemic levels and combined with high warehousing costs this may have created a more conservative approach to restocking (Figure 3&4).
Figure 3 - Data Source: University of Michigan
Figure 4 - Data Source: US Bureau of Labor Statistics
Certainly, it is possible that trade statistics did not fully capture the US demand for consumer products, especially from China. Chinese B2C cross-border e-commerce platforms such as SHEIN and TEMU have been playing an expanding role in supplying consumer products. According to China Customs, Chinese cross-border e-commerce exports grew by 9.6% in the first quarter of 2024. Mostly sent directly from China to private individuals, the primary products from these marketplaces, such as apparel, accessories, and home décor, are often under the De Minimis Value threshold (800 USD). That means that these parcels are not subject to taxes and that the customs process is simplified.
The outlook for trans-Pacific trade
The transpacific trade activities in the second semester are going to be complicated by a number of factors, including the surge in freight rates (if the overcapacity bubble does not burst before the end of the year), new trade-restriction measures, and the forthcoming US elections.
On the one hand, South Korean, Taiwanese, and Japanese exports to the US are expected to show more stability. The rapid development of AI and the policy consistency of IRA should continue to support US imports from these three countries. High value-added products are also more resilient to variations in freight rates. However, beyond 2024 two factors could affect EV exports to the US. One is the uncertainty over the future of the IRA in a Trump election scenario and the other is the domestic production of EVs by Korean and Japanese automakers in the US.
On the other hand, China and the ASEAN’s outbound flows are facing more uncertainties. The US consumer products’ market is full of mixed signals and industrial products from these two exporters are about to face additional tariffs. Below we lay out a more detailed discussion on the two types of products.
- Mixed Picture of the Consumer Market
The fear of ever-increasing ocean freight rates has led shippers to anticipate the importing of consumer goods from Asia, well in advance of holiday seasons. Compared to the overheated situation of the import sector, the retail market presented mixed signals. As a result, there is a disparity between shipping market demand and the end-consumer market.
This is particularly the case as consumer products are more sensitive to the change in freight rates, which will then inevitably reflect in consumer prices. With possibly only one interest rate cut this year in the US, the prolonged fight against inflation may overshadow consumer confidence, and thereby curb spending. Consumer sentiment, according to a survey by the University of Michigan, dipped in June to its lowest level this year (Figure 3). Of course, this is also product specific. While the fashion sector may see more active performance, one of Asia’s key export consumer product– electronics – remains weak. From this perspective, there is a lack of constant drive in demand for China and ASEAN consumer product exports.
On the flip side, consumers that are price-sensitive may opt to choose e-commerce platforms such as SHEIN or TEMU, potentially boosting the airfreight market. However, it should be borne in mind that these platforms are facing more geopolitical uncertainties because of the upcoming American presidential election. For example, an increased scrutiny of Chinese outbound parcels by US Customs may cause more disruptions in the air cargo flow.
- Industrial Goods and Changing Supply Chains
Industrial supply is the only category that saw a decrease in US imports in the first four months (Figure 3). We may see a slight change in this trend, given shippers may also actively stockpile industrial goods from China and ASEAN as in the case of consumer goods. But the raison is different: in this case, it is to avoid the additional customs duties that are about to come into force.
Starting from August 1st, 2024, the US will introduce additional tariffs on a number of Chinese industrial products, notably in the cleantech sector. These tariffs have been widely perceived as pre-emptive, because the direct impact is relatively small. The products subjected to tariffs in 2024 together accounted for roughly 2% of the total Chinese exports (in value terms) to the US, based on the annual trade statistics of 2023.[4]
The trade defence instruments against the solar products from ASEAN to the US could have a noticeable impact on trade flows. Besides the 14.25% tariff on bifacial solar panels already in place, the recently launched anti-dumping investigation could have a more far-reaching impact. If it leads to the introduction of new tariffs, according to the petition the amounts cited to compensate for dumping margins range from 70.35% (Thailand) to 271.45%(Vietnam). The results are expected around October. If these tariffs are put in place, considering that over 80% of the US imports of solar panels were from ASEAN in 2023, we can expect adjustments to manufacturing activities or trade diversions.
Overall, despite being for different reasons, both consumer products and industrial goods are provoking a surge in shipments. However, both types of products seem to be lacking in the necessary foundations solid enough to sustain the high demand. They are less driven by internal demand, than by by political, economic, and logistics abnormalities. That said, it is certain that, in the absence of a clear and immediate outcome to the situation in the Middle East, its disruptions could maintain tension on the major trade lanes. The revised financial projection by Maersk in June shows that shipping lines expect prices to remain high for an extended period.
Transpacific: a potential market that goes beyond the US
This paper so far concentrated on the trade between Asia and the US. However, the transpacific trade is witnessing emerging connections beyond the US.
The nearshoring phenomenon has boosted Mexican imports from China and Vietnam. In the first quarter of 2024, exports from these two countries to Mexico rose by 11% and 43% respectively. With more than 70% of their volume to Mexico being intermediate goods[5], these emerging connections indicate that alternative supply chains are in the making.
Indeed, the development of the connections with Mexico remains largely dependent on the US market. However, tensions with the United States are pushing China to cultivate new markets and one of them is South America, especially for Chinese cleantech products. In the meantime, the rapid growth of Chinese exports to the continent have also triggered rising concerns, some of which have been translated into trade retrictions. In addition, the newly launched Chinese anti-dumping investigation on pork from the EU could potentially benefit suppliers from, for example, Brazil– the third largest pork supplier to China. In the context of an ever-evolving political and economic landscape, a more dynamic transpacific trade pattern is in formation.
[1] The depreciation of the Chinese Yuan may have statistically lowered Chinese export value to the US when measured in the USD. For example, in Chinese Yuan, Chinese exports to the US grew by 2.4% in the first four months of 2024.
[2] This is based on the US Census Bureau data on HS code 8471.
[3] Here we use volume to measure instead of value, primarily due to the depreciation of Yuan. Volume are more accurate. If it is based trade value, then among the listed four commodities, only furniture and footwears presented positive growth.
[4] This is a rough estimation based on the tariff list and the trade data provided by the US Census Bureau.
[5] The trade data was derived from ASEAN Stat, and the share of intermediate goods is obtained from Mexico authority.
