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January 29, 2020 4:30 PM, EST

Trucking Watches China Trade Deal Progress

China Trade DealWorkers on the production floor at a tire manufacturing plant in Dongying, China. (Kangrui Group)

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The U.S.-China trade war has put a lot of stress on trucking, but the signing Jan. 15 of the first phase of a more comprehensive agreement between the two countries has spurred cautious optimism for the industry.

“I think it is a good first step, in large part because the trade war over the last 12 to 18 months has been hard on our industry,” Bob Costello, chief economist at American Trucking Associations, told Transport Topics. “It increased volatility in freight patterns significantly in 2019.”

Economist Rajeev Dhawan said the deal is akin to a truce: It doesn’t do much for the trade barriers already in place but it does promise to stop the escalation.

Rajeev Dhawan, director of the Economic Forecasting Center at the J. Mack Robinson College of Business at Georgia State University

Dhawan

“For the trucking industry it is good news because imagine if the tariffs had gone up more,” said Dhawan, director of the Economic Forecasting Center at Georgia State University. “That would mean there would be less demand for products in the U.S., which means there will be less shipping and less trucking.”

President Donald Trump implemented tariffs and other trade barriers against China with the goal of addressing what he sees as unfair trade practices. China, in turn, put tariffs on some U.S. goods.

With the deal, Costello is hopeful that freight movement will normalize in key segments.

“In retaliation for us putting these tariffs on China, they put on all these tariffs on U.S. goods, which hurt agriculture exports which then hurts trucking,” he said. “Even manufactured goods. That hurt the domestic supply chain for exports as well. So hopefully some of that starts to go away and we start to see better volumes at some point.”

Bob Costello

Costello

As part of the deal, China has agreed to buy an additional $200 billion worth of goods from the United States over the next two years. It also calls for China to make structural reforms that would provide more protection for U.S. intellectual property.

DHL Express sees these recent developments as a good sign.

“The U.S.-China trade relationship is one of the most important bilateral trade relationships in the world,” DHL Express Americas CEO Mike Parra said.

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Costello said that as the trade war was raging, each escalation hurt trucking. When the president announced a new tariff, shippers, manufacturers and retailers would rush goods from China to America.

“It created a short burst of freight coming in, and then it fell off a cliff,” Costello said. “That’s tough to manage through as a fleet. So it’s a good first step in that it de-escalates; there’ll be no new tariffs.”

He added that fleets prefer consistency to short-term gains to help with long-term planning. When there is no consistency, he said, companies usually prepare for the worst at the expense of capital and labor investments.

“This newly signed deal provides much needed certainty as well as some relief on some tariffs for both consumers and small businesses alike,” Parra added. “This predictability will help business make the essential long-term investments needed to support economic growth both in the United States and globally.”

Dhawan said, “If you are doing some long-term planning and you’re looking over the next 12 months, you’re saying nothing will happen either positive or negative. I think — especially on the negative side — for the next 12 months on U.S.-China trade there’ll be no more new tariffs, there’ll be no more extra tariffs. That possibility is now taken off the table.”

Likewise, the U.S. Senate’s passage Jan. 16 of the United States-Mexico-Canada Agreement that rewrites the rules of trade provided even more hope to trucking businesses.

RELATED: USMCA Passage Applauded by Trucking

Gene Sevilla, vice president for international supply chain solutions at Ryder System Inc., told TT that both trade deals reduce uncertainty and produce growth in the economy. “We are encouraged by the recent passage of the USMCA and look forward to full implementation.”

But the United States and China still have work ahead.

“DHL is strongly supportive of this first step and encourages the ongoing work to reach resolution on a comprehensive, high-standard and enforceable phase two deal, Parra said.

“We’re getting conflicting message on when this phase two is going to be talked about from within the administration,” Costello added. “But hopefully later this year if not sooner. By the same token I don’t think it’s going to collapse anytime soon.”

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