FT premium subscribers can click here to receive Trade Secrets by email
The Xin Wang Hong Kong Café, overlooking the west runway at Singapore’s Changi international airport, seems like a fitting place to write a Trade Secrets briefing as China’s coronavirus crisis rumbles on.
For one thing, it is quieter than most libraries, even during Monday lunch hour at what is usually one of the world’s busiest international airports. So too are the nearby Terminal 3 departure and arrival halls. It is all a reminder of one of the most remarkable aspects of the coronavirus epidemic and the subject of today’s post — the drastic impact the disease outbreak has had on what are usually some of the world’s busiest aviation and maritime trade corridors connecting Singapore, Hong Kong and Taiwan.
Our Policy Watch looks at how a nails importer has struck a blow against the Trump administration.
Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to [email protected], or email me at [email protected].
South China Sea or Bermuda Triangle?
Even someone blissfully unaware that a highly contagious respiratory disease had been spreading across China and beyond since mid-January would realise something was amiss upon entering the Xin Wang café. Aside from the almost complete absence of patrons, those few that do arrive are required to clean their hands with an antiseptic gel. And while at most airports you don’t normally encounter the phrase “your safety is our priority” until boarding an aircraft, it appears at every table alongside the assurance that “the table has been sanitised before each dining session”.
Outside on Changi’s west runway, planes arrive at seemingly busy two-minute intervals. But the sparsely populated terminal reflects the fact that many of those planes are almost completely empty, especially if they are arriving from Hong Kong or other cities in southern China’s Pearl river delta, such as Shenzhen or Guangzhou.
There is simply no point booking business-class seats on these routes any more. On two recent flights between Hong Kong and Singapore, your Trade Secrets correspondent and perhaps 20 other passengers shared the entire economy-class cabin. Flights between Hong Kong and Taiwan are even more sparsely populated, after the latter banned most visitors from the former for fear that they would be carrying more than just a few bags.
Coronavirus infections have been slowly but steadily climbing in both Singapore (77 cases) and Hong Kong (61 cases). It is not inconceivable that, should the virus take off in either or both cities over the coming weeks, that they too might move to cut off visitors from each other.
The importance of Singapore, southern China and Taiwan to global supply chains and international finance is so great that it is hard — in the event that these regions are soon forced to completely sever aviation links with each other — to think of a reasonable parallel in North America or western Europe. But one might imagine what the US would look like if the flow of people, services and air cargo between New York, Washington and Chicago were to brought to an abrupt halt by, say, a pandemic emanating from the heart of the People’s Republic of China.
Container terminals on Singapore’s southern shore. The busy port offers a clear visual indicator of the state of the world’s shipping industry © Nicky Loh/Bloomberg
As it is in the air, so it is at sea. Before touching down at Changi, aircraft fly low over one of the most remarkable maritime vistas in the world: the hundreds upon hundreds of container ships, oil tankers and bulk carriers anchored off the city state’s southern shore, an anchorage also known as the “Singapore Roads”.
The Singapore Roads, as one veteran Hong Kong shipping executive puts it, are by far “the layman’s easiest optic on the state of the shipping industry”. The more vessels moored there awaiting charters, noted Tim Huxley, chairman of Mandarin Shipping, the more sluggish the global economy.
Clear-cut statistics for the coronavirus epidemic’s impact on regional aviation and shipping services will not be clear until mid-March when figures for the first two months of the year are available. January figures released over recent weeks give only a hint of the real damage being done, as the epidemic did not erupt in full force until the end of last month. The variable Chinese lunar new year holiday, which fell in January this year but February last year, also muddies available year-on-year comparisons.
But it is not hard to imagine how awful those statistics are likely to be when they are finally available, Mr Huxley notes, when one considers that China accounts for about 25 per cent and 35 per cent of global crude and dry-bulk imports respectively, as well as 30 per cent of total container exports. “This crisis,” he added, “has made people so much more conscious of just how fragile global supply chains are.”
Over recent weeks there have been at least 31 “blank sailings” — sailor-speak for cancelled services — from China to either the US or Europe. And aside from the inevitable year-on-year falls in air passenger, air cargo and maritime cargo, there are other impacts from the epidemic looming. These include an estimated 200 vessels stuck in Chinese shipyards awaiting installation of new exhaust “scrubbers” that they require to comply with stricter environmental emissions standards — and the approximately 860 new ships China’s boatbuilders are supposed to deliver this year.
Xi, coronavirus and the US-China trade deal
Last weekend the Chinese Communist party confirmed what many people had already suspected. President Xi Jinping was deeply involved in efforts to contain the Wuhan coronavirus at least as early as January 7, even though the seriousness of the situation was not formally acknowledged by his administration until a fortnight later.
On January 15, vice-premier Liu He signed a “phase one” trade deal with the US in which China agreed to increase its imports from the US by at least $200bn this year and next, compared with 2017 levels.
In fairness to both Mr Xi and Mr Liu, it is unlikely either could then imagine the scale of the catastrophe that was about to emerge from central China. But it is now highly unlikely that Beijing will be able to meet its promised purchase targets.
That may not worry US president Donald Trump as much as one might expect. For Mr Trump, the objective was always to reduce China’s trade surplus with the US. An epidemic-induced collapse in Chinese exports is another way to achieve that goal.
Policy watch
The Trump administration’s expansive steel and aluminium tariffs programme has suffered a legal setback © Scott Olson/Getty
In an unglamorous legal case that has gone largely unnoticed, a Texas-based importer of nails and screws has struck a blow against the Trump administration’s expansive steel and aluminium tariffs programme, writes Aime Williams.
The New York-based US Court of International Trade issued a temporary order on Friday banning American customs agents from collecting duties from PrimeSource Building Products Inc, after the company filed a complaint against the administration’s surprise expansion of steel and aluminium tariffs to include associated products.
PrimeSource argued that the Trump administration had not followed a timeline set out in Section 232 of its 1962 trade legislation, the Trade Expansion Act, and had violated other elements of US law by not giving due notice to the affected importers.
While the reprieve applies only to PrimeSource for now, the ruling represents another setback for the administration’s interpretation of US trade law. Its use of Section 232, which was designed to allow a president to tax imports threatening national security during the cold war era, has proven particularly contentious.
In November, the Court of International Trade ruled that Mr Trump could not double the tariff on Turkish steel imports because he had exceeded the time limit on his Section 232 authorities.
Don’t miss
- Britain’s top negotiator with Brussels insisted last night the UK would never agree to EU oversight of its rulemaking in exchange for a post-Brexit trade deal, even as France sought to toughen the bloc’s stance in the talks.
Read more - In 2013, Japan’s new prime minister Shinzo Abe delivered his first policy address, vowing to revive economic growth and end two decades of on-and-off deflation. He planned to achieve this with the “three arrows” of Abenomics. Seven years on, he has little to show for it.
Read more - The Dutch parliament on Tuesday votes on whether to ratify the EU-Canada free trade agreement (Ceta) which was approved in 2016 and came into provisional force in 2017. In normal times, a Dutch green light for EU free trade agreements would be taken for granted. But Ceta is perilously close to being struck down.
Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
- A decade after leaving the Philippines for China, FedEx will develop a regional cargo terminal at Clark Air Base to reduce reliance on its Guangzhou hub due to the US-China trade war.
Read more - Foreign fund managers eyeing the $1.5tn Chinese distressed debt market are put off by high accountant and lawyer fees, which can be five times that of other regional markets.
Read more
