Noises coming from the U.S. that suggest the new administration is moving closer to a trade war with China is at the centre of attention for A.P. Moller-Maersk A/S, the owner of the world’s biggest container shipping line.
Maersk’s management has been but little unsettled by the Bottom of Form
U.S. President Donald Trump’s rejection of trade agreements with the rest of North America and Europe.
“But when the talks come to a potential trade war with China, we sit up and listen,” Soren Skou, the chief executive officer of the Copenhagen-based company, said in an interview on Wednesday. “That would have a very negative effect on our business.”
Maersk saw its shares sink on Wednesday after reporting a full-year loss when analysts had predicted a profit even as the company is trying to split off its energy operations in order to focus entirely on a transport division led by its container shipping line. The projection for 2017 also disappointed some investors even though much of the result was due to one-time impairments.
Helping it increase its profit from freighting goods by at least $1 billion, the company expects the global shipping market to grow about 2-4 percent this year. But ultimately a mockery of such forecasts can be made by a full-fledged trade war between the U.S. and China. And with accusations of currency manipulation being hurled at China, Trump’s rhetoric so far suggests he’s ready for battle.
China’s exports to the U.S. would fall by as much as 25 percent, if Trump were to impose tariffs against China of up to 10 percent, estimates Goldman Sachs analysts. China’s economic growth could thus be eroded by as much as 1 percentage point.
There is also a lurking fear of retaliation. Ads much as a quarter of a percentage point off U.S. gross domestic product could be shaved off by a Chinese response, predicts the Goldman analysts. And hence there would undoubtedly be an knock-on effect across the globe as the world’s two largest economies would suffer significant trade-related losses.
Maersk has taken advantage of a consolidation wave in the industry to spread its geographic reach as its most important route is container traffic coming from Asia and bound for Europe. But if the whole world sinks into a trade war, even that strategy might prove futile.
“Nationalism has become a globalized phenomenon and that’s a very ugly development for shipping,” said Peter Sand, chief shipping analyst at Bimco, the world’s biggest shipping organization. Though a global trade war isn’t the main scenario, “it’s already clear that we’re seeing an increase in protectionism.”
Plenty of signs that trade barriers are an issue already exists, notes Sand. According to a report published by Geneva-based WTO in December, the 164 members of the World Trade Organization have only removed 740 of the roughly 3,000 trade restrictions put in place since 2008.
Maersk is more positive on what it’s hearing on tax proposals coming from the White House even while the fallout of Trump’s trade policies looks alarming to the company.
“The new administration in the U.S. wants lower taxes and it’s also planning huge investments in infrastructure,” Skou said. “And that will, without a doubt, mean more imports for the U.S., which is good for our business.”
(Adapted from Bloomberg)