Chinese Yuan and U.S. Tariffs
The Chinese Yuan has declined in value against the U.S. dollar during the course of the Summer and other than a two-day gain of roughly 1.2% that came after reports of a potential meeting between President Trump and China’s President Xi Jinping the value continues to decline. While the reasons for the decline are complex, the net effect is to erase much of the intended impact of the 10% additional duties imposed on Chinese imports into the U.S.
President Trump and President Xi Jinping had a telephone call on Thursday that Trump said was, “long and very good.” White House trade adviser, Peter Navarro, confirmed that Trump and Jinping will meet in Argentina at the Group of 20 Nations summit.
There are reports that the administration will announce a new wave of tariffs on Chinese goods if President Trump and President Jinpnig fail to come to an agreement later this month. The additional tariffs will cover another $257 billion worth of imports.
The current Section 301 tariffs of 10 percent on roughly 1,300 products are already causing increases in prices on some consumer goods. The strengthening dollar and weakening yuan may offset the duties to a degree, but it is unlikely that businesses will be able to absorb the proposed increase to 25 percent by January 1st.
Due to the increase in tariffs from 10 percent to 25 percent by January 1st, many importers will try to arrange to have their products arrive before the end of the year. There have been regular delays in departures from China due to weather and congestion, which causes further delays to the estimated date of arrival to the U.S. Transit time from China to the U.S. East Coast is roughly 30-35 days, which means importers must ship their goods by mid-November at the latest.
This pressure ensures that ocean space will remain tight and spot rates will remain high through the end of the year. There is also the possibility of a upcoming general rate increase (GRI) on ocean cargo.
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