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China tariffs creating 'irrational exuberance' in the US marketplace

Excess inventory is more of a concern than tariff hikes for some, heading into 2019.

An agreement to delay a 25 percent import tariff that was set to take effect January 1 has not eased market uncertainty resulting from an ongoing trade war between US President Donald Trump and China.

In the latest turn of events for a trade war that started earlier this summer, Trump and Chinese President Xi Jinping agreed in early December to put a 90-day pause on the tariffs, reports CNBC.

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Rob Hallion, president of Massachusetts-based Crocker & Winsor, told IntraFish he is more concerned about excess inventory than tariffs as the new year approaches.

Since September Hallion and other US importers have been dealing with an additional 10 percent tariff on seafood imports from China. The imports are the result of the Trump-China trade battle, and these tariffs will continue into the new year.

US businesses have, in turn, felt the impact of China's retaliatory tariffs on some seafood products such as US lobsters, where Canada is now gaining an edge.

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Hallion said businesses have been reacting to the higher tariffs by ramping up imports from China over the past few months, a trend he expects to continue into January, with the 25 percent tariff now delayed.

"There has been irrational exuberance in the marketplace that has to do with folks like myself as importers, and through the supply chain," he said. "My customers have bought ahead as part of what they needed into 2019. Some of those things will come back to haunt us. The pipeline can only consume so much fish."

His full-line frozen seafood company has built a business in China over the past 20 years sourcing tilapia, shrimp, squid and crab meat from the country.

He said all of those species have been subject to the "irrational exuberance," which is why he purchased product earlier than usual this year.

"The next six weeks leading up to the Chinese New Year, I don't have a lot of product coming in because it's already here," he said.

He will hold back some inventory in 2019 because it could potentially increase in value given the market's uncertainty, he said.

And because Hallion paid 10 percent more for seafood from China this year than he has in previous years, he said he is worried about his product retaining value in a US market that could potentially be flooded with seafood through next summer.

Setting the course for uncertainty

The market uncertainty has not deterred Hallion and others from doing business in China.

Peter Quinter, a longtime Florida-based customs and international trade lawyer representing seafood importers, warehouses, and transportation companies, told IntraFish, 75 percent of his clients, like Hallion, have continued to use China as a supplier despite the financial headaches from an ongoing trade war.

Instead of finding a new source for products, businesses are finding ways to negotiate discounts, he said.

US businesses are also seeing discounts from Chinese currency steadily losing value this year, but not enough that those discounts are being felt by consumers, who pay for the additional costs at the seafood counter, he said.

Amy Magnus, president of National Customs Brokers and Forwarders Association of America (NCBFAA), told IntraFish companies are likely to stick with whatever supply chain they're using right now if they haven't made the switch to something else already.

"The ones that could change a product in some way are probably on that path," she said.

Companies are also likely to be stuck with whatever additional tariffs get decided next year and may have to look to 2020 to negotiate a better deal.

Even businesses that planned ahead are not free from the chaos. Those negotiations, which often include who will be responsible for duties, were made months in advance of the trade war tariffs, she said.

Businesses are likely more focused on writing contracts for the months ahead that will focus more specifically on how tariff costs are handled with such an uncertain future for both US and Chinese goods, she said.

"In a normal world, we knew what the duties were going to be for the coming year," she said. "No one can relax. The uncertainty is what creates anxiety in the marketplace. This is a system and it's been functioning for many years. It's like the rules all of sudden have changed."

And most likely, she said, the consumer will pay the most for whatever challenges and changes lie ahead.

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