High Cost of Cargo Shipping could "reverse globalization,"
higher freight costs are likely to change global trade and production patterns.
Volume 12 Number 20 4 June 2008
HIGH COST OF CARGO SHIPPING COULD "REVERSE GLOBALISATION," REPORT SAYS
Rising international shipping costs driven by high oil prices could effectively wipe out decades' worth of trade liberalisation, according to new research from CIBC World Markets.
By making it substantially more expensive to ship cargo over long distances, higher freight costs are likely to change global trade and production patterns, said the Canadian investment bank. They may also make it easier for domestic manufacturers to withstand competition from lower-wage countries. For instance, US steelmakers have already become competitive against Chinese imports for the first time in more than a decade.
"In a world of triple-digit oil prices, soaring transport costs, not tariff barriers, pose the greatest challenge to trade," argue the study's authors, Jeff Rubin and Benjamin Tal.
They reckon that in 2000, when oil cost US$20 per barrel, transport costs were equivalent to a 3-percent tariff rate in the US. At US$100 per barrel, a threshold crossed at the beginning of this year, "transport costs outweigh the impact of tariffs for all of America's trading partners." Current transport costs (with oil above US$130 per barrel) are equivalent to an average tariff rate of over 9 percent. If oil prices hit US$150 per barrel, say Rubin and Tal, the 'tariff-equivalent' rate in the US would be 11 percent - comparable to import duties in the 1970s. At US$200 a barrel - a rate which some analysts think likely over the next few years - "we are back at 'tariff' rates not seen since prior to the Kennedy Round GATT negotiations of the mid-1960s."
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