EU carbon tariffs and US subsidies will have a major impact on logistics services.

The pressures on globalised supply chains are growing. Just after the introduction of the remarkably aggressive ‘Inflation Reduction Act’ in the US, the European Union has just agreed to adopt a carbon emissions tax on all imports into the bloc.

The EU proposal is to require products imported into the bloc to pay a tariff called a ‘Carbon Border Adjustment Mechanism’ which will mean that, in the words of the European Commission, “EU importers” will have to buy “carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules.”

If implemented this would presumably have a substantial impact on product flows into much of Europe. For example, bulk chemicals would presumably attract substantial tariffs under the system as would any product made from steel. Up until the beginning of 2022, European economies such as Germany and Belgium ran substantial trade surpluses in sectors such as chemicals, both bulk and specialty, with Antwerp being a major production and logistics hub for the sector at a global level.

However, the leap in energy costs had crippled the competitive position of this and other energy intensive sectors. Producers in the US and energy rich regions such as the Middle East are now in a strong position to gain market-share even within European ‘home markets’. If a carbon tariff is imposed this trade may be obstructed.

Although the politicians behind the ‘Carbon Border Adjustment Mechanism’ will claim that it is motivated by environmental concerns it is hard to not to view its results as a major disruptor of global trade flows. The impact of the Inflation Reduction Act in the US would seem to be similar. It gives producers of electronic products such as semi-conductors, automotive lithium-ion batteries, solar-panels, even nuclear power-stations, huge subsidies to make their products in the US. The implications for sourcing production in the affected areas would appear to be very significant.

It is unclear whether either of these policies will be applied over the longer-term, with the politicians still arguing about them. However, they illustrate that the world has clearly entered a new economic phase that has significant implications for sourcing strategies for companies with extensive supply chains. It would appear that this, in-turn, will have a major impact on logistics services, serving intercontinental routes.

Author: Thomas Cullen

Source: Ti

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