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Monday, September 23, 2019

Maritime Logistics Professional

Trade, Trump … and Trust

Posted to Global Maritime Analysis with Joseph Keefe (by on June 19, 2019

Winning this or any other ‘trade war’ will take intestinal fortitude. Worth it or not, I’m not sure we have what it takes.

As we rapidly churn towards the midpoint of 2019, the maritime sector’s biggest story of the year – and arguably its biggest heartburn – surrounds the topic of trade; specifically as it relates to tariffs, fair trade and the ongoing negotiations here in this hemisphere, and across the big pond with the world’s fastest growing economy, China. Brace yourself: this won’t be a popular read, but you also won’t find anything that isn’t true within the body of this text.

The impact(s) of the ongoing trade row are far reaching; extending well beyond its effect on the health of international blue water box shipping (in particular). In the heartland, the nation’s biggest customer for soy beans just happens to be China, and in the midst of a record harvest and the already difficult logistical (mostly weather-related) situation on inland rivers, that’s got a lot of people worried. Closer to home, the Trump administration is using tariffs to leverage some cooperation in solving or at least mitigating the ongoing immigration crisis (there: I said the “C” word, right out loud) from our neighbors to the immediate south.

It’s a lot to digest, it changes on an almost daily basis and it is controversial. That the economy has been, up until now and for a sustained period, robust, is also fortunate. You probably couldn’t attempt any of this during a recession. Moreover, defining success in such an effort is a moving target and in the end result, there will always be collateral damage. It was the late (Captain) Timothy Brown, the successful and much admired leader of the Masters, Mates & Pilots union for more than 20 years, who perhaps summed up this type of situation best when he told me a number of years ago, “Joe, the mark of a good deal is one where everyone walks away from the table a little bit unhappy.” Now, I have no idea what Captain Brown thought about trade wars, but when this one is all said and done, his advice will likely be spot on.

No More Signing Ceremonies

As the current trade spat evolved over the past six months, its trajectory didn’t surprise me in the least. From the U.S. side, the Trump Administration complained that China had reneged on certain aspects of the deal that had been previously agreed upon. For its part, China says that’s just not true.

A recent Reuters article describes how ‘China urges dialogue, negotiation to solve the trade row with U.S.’ The piece goes on to say, “China's commerce ministry on Tuesday urged dialogue and negotiation to solve trade differences with the United States. It is common to make revisions, suggestions and adjustments in trade negotiations, it said in a statement in response to U.S. government comments that China was pursuing a ‘blame game.’” Of course, we’re not privy to everything that’s happening, but this is tracking eerily similar to another effort that occurred way back in the early 1990’s. Stay with me.

Back then, I played squash regularly with a good friend in Houston, Texas. Harry (not his real name) was a young attorney for a large energy outfit based in the Bayou City, and he traveled frequently on business. After one of our usual matches one night, he let me know that he was about to head to China on business, and that he’d probably be gone at least ten days. I didn’t think too much of it, except to make a mental note to thumb through my rolodex for someone else to play squash with, while he was gone.

Four days later, however, the telephone buzzed and my secretary (surprisingly) advised, “It’s Harry, line 1.” I picked up and after exchanging pleasantries, he asked, “You want to play tonight?” I replied, tongue-in-cheek, “Sure, but I’m not flying to China to do it.” He laughed and said, “I’m back a little early. I’ll tell you about it later. I’ve got the court for 6:30. See you there.”

It turned out that his firm had sent no less than ten executives and attorneys to China for what was to be a signing ceremony. Upon arrival, it was Harry’s job, along with three or four other attorney colleagues, to read the fine print in the documents to ensure that it said exactly what had been agreed to in previous negotiations. This was not the case. Not even close, actually. But, the Chinese negotiators apparently figured that, with the Americans having sent ten people half way around the world at great expense to consummate an important deal, that they’d get a few more concessions by changing the deal at the last second. Actually, not so much. Stop me if any of this sounds familiar.

They hadn’t been in country for even 48 hours. But, six months of trust had been broken in less than two days. The lead executive from the energy firm told his subordinates (that would be Harry and friends) to go back to their hotels, pack it up and get ready to fly back early. And, that’s just what they did. Now back in the USA, after our match and over a beer with my friend, I asked, “So, what happens now?” He paused dramatically, took a long pull off that longneck and then deadpanned, “No idea. But, I’m told there won’t be any more signing ceremonies.”

NAFTA

Meanwhile, the North American trade drama is also playing out, if not in the same way, then in a similarly choppy fashion. There is much discussion around the use of tariffs as a punitive measure to exact what the United States government thinks is a minimum standard of behavior and cooperation in other areas; the illegal immigration situation on the southern border, for starters. I’m not qualified to say if the threat of escalating tariffs is the right way to go about getting what we want, but it does seem to be one of the few things left in the executive branch’s tool box to solve the increasingly expensive logistical nightmare of border security. On the other hand, and when it comes to North American trade, I do have one or two opinions.

The concept of North American free trade – or what has come to be known as NAFTA – is a nominally good idea. NAFTA – with Canada – that is. Think about it: why wouldn’t you want to enjoy a mutually beneficial trade policy with a neighbor whose environmental, social, humanitarian and ethical standards are as close as one can globally get to what (we say) we believe in? I hope that we come to terms with our northern neighbors – our friends – in a fair and equitable way, and stay that course for many years to come. Looking to our southern border, that goal remains elusive and I’m afraid that’s the way it will stay.

Negotiating trade with a country where environmental standards are lacking, corruption is the rule rather than the exception, and the treatment of labor (I’m being kind) remains far below what we consider to be minimum benchmarks, is problematic. This is a country blessed with all the energy in the world and yet, today, finds its national petroleum firm’s financial rating battered to ‘junk’ status. And, to say that the humanitarian crisis that exists on the other side of the border is being happily exported to the United States would not overstate the gravity of the situation.

Intestinal Fortitude

I can’t remember a time when this much was riding on so many trade spats. So much so that global equities markets have been rattled; time and time again. And, I’m no different than anyone else. I’m not getting any younger and I don’t want this situation to impact my bottom line any more than the nation’s soybean farmers want it to impinge upon theirs. As I begin to move my financial positions (at the direction of my financial advisors) to places of (supposedly) less risk, my children’s 529A college accounts have been sitting in money market positions for almost two years. Yep: I missed A LOT of the upside. I was also able to sleep at night knowing that whatever I’d saved (so the nation’s finest universities can stay in business), also wouldn’t evaporate overnight during the next financial crisis.

To be clear, much of the previous paragraph should NOT especially considering that time-honored Keefe family tradition of ‘buying high and selling low,’ – be construed as financial advice. That said; I guess you could say I’m having a loss of intestinal fortitude. If so, then I’m probably not alone in that overcrowded life raft. That’s not to say I think we shouldn’t take a harder line when it comes to global trade policy. I do.

When it comes to China, we know exactly who we are dealing with. Or, heck; we certainly should. This is a country where by their own admission, fossil fuel emissions will peak in 2030 – or at about the same time California says that the Golden State’s ports must be emissions free. Naturally, China wants to be treated as a third world, emerging economy for the purposes of the so-called Paris Climate accord while at the same time enjoying first world trading privileges. It shouldn’t work that way. But, to date, it has, and unless something changes, that’s exactly what will continue to happen.

And, wasn’t it just this week that China pulled its WTO suit (which claimed it to be a ‘market economy’) just in time to make sure that the result did not become official? Within that battle, China was – according to a Reuters report – on course to lose the bulk of the case, with only some minor points going in its favor. Indeed, China is no more of a market economy than it is an emerging nation with third world privileges when it comes to environmental issues.

Defining Victory

Can a trade war be won? I don’t know. I’m willing to bet that MM&P’s Captain Timothy Brown, if he were with us today, would define victory as the mutual ‘give and take’ of honest negotiation, that eventually yields a compromise that everyone can live by. That should be everyone’s ultimate goal. It’s certainly mine.

Donald Trump didn’t start this trade war. It’s been going on for decades. He is, however, the first President in recent memory to push back and do something – anything – about it. In terms of policy, you can argue about the uneven delivery, the lack of tact or even the previously accepted protocol that he typically ignores. And, you might even be right about all of that.

Really, the only thing that matters is to ask, “Do WE have the intestinal fortitude to ride out the short term pain on the way to long term prosperity?” Do you? – MLPro.

* * *

Joseph Keefe is a 1980 (Deck) graduate of the Massachusetts Maritime Academy and lead commentator of MaritimeProfessional.com. Additionally, he is Editor of both Maritime Logistics Professional and MarineNews magazines. He can be reached at jkeefe@maritimeprofessional.com or at Keefe@marinelink.com. MaritimeProfessional.com is the largest business networking site devoted to the marine industry. Each day thousands of industry professionals around the world log on to network, connect, and communicate.

Comments

Jeremy demond Leday, at June 20, 2019

Very well stated and I'm in full agreement. Let's hope the nation can stay the course. Dick Butler, Eng '76 MMA

Jeremy demond Leday, at July 26, 2019

Joe, We met at a CAMM conference in Seattle many years ago. About 30 years ago I attended a conference in NOLA sponsored by a fed Commerce office. During that conference I remarked that the U.S.was in an economic war with China. The room dropped into dead silence. Everyone had the eyes of a deer in a spotlight! I thought" Where have their thoughts been all these years that they didn't see this coming?" It appears that some are beginbig to see it now. We really screwed up over the technology grab. We can only attribute it all to greed. Gary Tober CAPT USN ret., lic. Master Oceans Unlimited, ret.,SUNY MARITIME '62

Jeremy demond Leday, at August 8, 2019