Trade War Already Having Major Ripple Effects As China Readies More Retaliation

The effects of the trade war between China and the United States are already beginning to snowball in ways that could directly affect construction.

In response to President Donald Trump raising the tariff rate on $200B worth of Chinese products from 10% to 25%, several users of those products have attempted to use nearby Southeast Asian countries for manufacturing and shipping, but those nations don't have the capacity to take on the extra demand, the Wall Street Journal reports.

Vietnam spent about $5B less in infrastructure in 2017 than it would have taken to keep up with international shipping needs, according to World Bank estimates obtained by the WSJ. No data is available in the time since, but over that time U.S. requirements have skyrocketed — this April, seaborne imports from Vietnam rose 29% year over year, compared to 2% from China.

Vietnam and its Southeast Asian neighbors like Malaysia, Singapore and the Philippines lack the kind of high-capacity infrastructure on land and sea that China has spent decades investing in, meaning that for many companies, they aren't viable alternatives to circumvent the tariffs, according to the WSJ. What goods are shipped from Southeast Asia take longer to arrive, slowing down the flow of materials at every subsequent point in their journey.

The effects have already been felt, as A.P. Moeller-Maersk, which controls 20% of all shipping containers on Earth, posted a loss in the first quarter based entirely on losses incurred in the two weeks since Trump announced the higher tariffs. Maersk anticipates a drop in container growth of up to a third this year, the WSJ reports.

For the first quarter, Maersk posted a net loss of $659M after posting net profits of $2.73B a year before. Canceled orders made up $552M of those losses, the WSJ reports. Independent of the losses, incoming revenue rose 33% year over year. Other major shipping companies also reported shrinking orders, which can be directly attributed to tariffs, an analyst told WSJ.

Shipping volumes spiked in the latter half of last year as the industry braced for the tariffs, but moving forward it seems that imported materials will be more scarce even as they rise in price. Those two headwinds caused by the tariffs will do "huge damage to construction," international trade lawyer Nicole Bivens Collinson told Bisnow in the days following Trump's announcement.

The U.S. has also blacklisted Huawei, China's largest technology company and the second-biggest maker of smartphones in the world, meaning U.S. suppliers are not allowed to sell their products to Huawei without explicit permission from the federal government, Bloomberg reports. Trump has accused Huawei of using its business relationships to conduct espionage on the behalf of the Chinese government, a charge China has denied.

Trump has indicated a willingness to include his Huawei policy in future trade negotiations. Chinese envoy Cui Tiankai told Bloomberg that while his side remains committed to negotiations, it is also ready to exact reprisals over the blacklisting — what he called an "unusual [use of] state power against a private company.”

“If [negotiations] are moving in the wrong direction, then you could see a response very soon,” Tiankai said of the Huawei blacklisting. “But if we could work together to push in the right direction, then things will get better of course.”

Tiankai declined to elaborate on what shape retaliations would take, but if China makes good on its threat, a situation that has already caused sweeping damage to industries on which real estate depends could escalate. On the bright side, it would make already-built properties more valuable.