Global Rubber Industry Booms After Covid

The Covid-19 pandemic reordered the global economy as billions of people learned to work from home, crippling demand for everything we use to get around, from shoes to petroleum. One of the commodities that got whacked by Covid in 2020, because it is so tied to the automotive industry, and is now staging a comeback, is rubber.

Shipments of tires, gloves, tubes, hoses, conveyor belts, and other rubber products are trending up this year after sharp declines in shipments and prices in 2020, according to an analysis of first-quarter trade data by Trade Data Monitor, the world’s top source of trade statistics. 

The world number one importer, the U.S., reported rubber imports up a whopping 34.6% to $9.1 billion in the first quarter of 2021, as Americans bought new car tires to get back on the road, rubber gloves to protect themselves from Covid, and new rubber-soled shoes to walk around as pandemic restrictions taper off.

The world’s top exporter, China, reported shipments of rubber up 65% in the first quarter of 2021, exporting $7.3 billion, up from $4.4 billion in the first quarter of 2020. China’s top customer, the U.S., more than doubled its orders, buying $1.3 billion worth, compared to $418.6 million over the same time period in 2020. 

Over half of all Chinese rubber shipments -- $3.9 billion worth -- of those exports were in the form of tires for cars. But China also increased shipments of conveyor belts (up 36% to $244.9 million), which are crucial components of e-commerce; tubes, pipes and hoses, often used in automotive (up 49% to $269 million); and rubber gloves (up 1,241% to $1.1 billion).  

It wasn’t just China. In the first quarter, the world’s number two exporter, Thailand, increased rubbed exports 36% to $5.3 billion. Although Thailand exported $1.5 billion of tires, it also shipped out $1.4 billion of natural rubber, a raw material. 

In 2020, natural rubber, which is harvested from trees, accounted for around 46% of global rubber productions. The rest was synthetically produced from petroleum byproducts, a technology spurred by rubber shortages during the 20th century’s two world wars. 

Rubber is used to make everything from shoes and toys to golfs balls and condoms, but the biggest driver of the global rubber trade is still car and truck tires. That industry got hammered by Covid. In 2020, imports by the U.S., the world’s top consumer, fell 9.8% from 2019 to $13.2 billion from $14.6 billion. Americans weren’t driving as much, so they didn’t need to replace their tires. This trend, enacted around the world, decimated global rubber trade in 2020.  

In the first quarter of 2021, U.S. consumers got back on the road, and tire imports increased 4.7% to $3.6 billion.  

Overall, during that time, U.S. rubber imports increased 34.6% compared to the year before, rising to $9.1 billion from $6.7 billion. A big chunk of that increase came from shipments of rubber gloves, which more than doubled, to $2.6 billion from $613.2 million. The U.S. is the world’s top rubber importer, shipping in $27 billion worth in 2020.  

The U.S.’s top suppliers of rubber were Thailand ($4.1 billion), China ($2.8 billion), and Malaysia ($2.8 billion). The U.S. buys rubber from a wide variety of sources, ensuring that it will have stability of supply. It imported over a billion dollars’ worth of rubber from eight different countries.  

The only rubber item to buck the downward trend in 2020 was gloves. U.S. imports exploded to $4.1 billion in 2020, from $2.3 billion in 2019, a 78% increase.  

A resurgent rubber import market suggests that the U.S. industrial economy is stabilizing. U.S. imports of rubber tubes, pipes and hoses increased 0.7% to $267.7 million in the first two months of 2021, after falling 17.7% to $1.4 billion in 2020.  

China was the world’s only major economy to expand in 2020. It increased rubber exports 1.7% to $22.5 billion. It shipped over a billion dollars to only two trading partners, the U.S. and UK., meaning that its producers enjoy a wide, global customer base.  

However, Malaysia, the world’s fourth biggest rubber exporter, delivered the best performance in 2020, increasing rubber exports 58.1% to $11.2 billion. Thailand and German were the world’s second and third biggest rubber exporters in 2020, and the U.S. was fifth.

UK Trade in a Post-Brexit World

Looking for Love Outside the EU

The trade consequences of Brexit already include a dramatic shrinking of commerce with the European Union, an expansion of trade with other allies, redrawing of supply chains for companies, and the separate counting of foreign trade with Northern Ireland, according to an analysis of import and export statistics from Trade Data Monitor, the world’s top source of trade data.

Now that the UK is completely independent and outside the EU, it’s Brussels’ third largest trading partner, after only China and the U.S. But already that status is shrinking. In January, UK exports to the EU dropped 41% from the previous month to $11.3 billion. To be sure, the Covid-19 pandemic has thrown global trade out of whack, but still, Brexit is a huge challenge for trade: In 2020, seven of the UK’s top 10 trading partners were in the EU.

There are signs UK companies are seeking out buyers in other countries, but those markets pale in comparison to the EU, a bloc of around 450 million people. Exports to Australia increased 25% in January to $458.3 million. Exports to India rose 13% to $431.8 billion. And shipments to South Korea went up 15% to $352.6 million. The challenge for UK officials and business will be to grow those markets.

Brexit is a Historic Turning Point in Global Trade

The dismantling of the UK’s free trade zone with the European Union is a unique experiment in global economic history. Brexit is another sign of the end of the free-trade consensus that has governed international relations since World War Two. When Britain joined the European Union in 1973, freer trade was the union’s primary purpose. EU nations badly needed liberalized economies to rebuild and prosper. Now, a new global trade system is emerging that must take into account protectionist politics driven by regions and constituents that have suffered from free trade.

The New Deal With the EU: Non-Tariff Barriers

What’s replacing the UK’s customs union with 27 other EU countries isn’t nothing. The EU-UK Trade and Cooperation Agreement (TCA), a 1,246-page treaty, signed in December 2020 includes deals on a range of topics like fisheries, law enforcement, and rules of origin. Overall, tariffs will remain nonexistent or very low. Instead, the challenge for companies and the banks and institutions that finance their trade, are non-tariff barriers and the risk of emergency tariffs in the future. Over time, it’s possible that political conflict will trigger tariffs as retaliatory moves, forcing companies to adjust their supply chains. UK negotiators had a tough task. EU negotiators clearly had the upper hand in making the deal. The UK has accounted for only 15% of total EU exports outside the bloc, while over 40% of UK exports go to the EU.

The non-tariff barriers imposed by the EU include the high cost of registering chemicals, strict health and safety standards, and rules of origin which mean that the UK can’t just assemble parts made in China and count them as a UK export. The net effect will be to prompt companies setting up supply chains to avoid routing goods through the UK to avoid extra costs.

Free-Trade Deals, Anyone?

With Brexit, the UK isn’t just losing easy market access to the EU. It’s also dropping out of over 50 trade deals the EU has signed with third countries. The UK has been actively pursuing markets for its companies outside the EU, pursuing trade deals with the U.S., Australia and New Zealand. In October, 2020, it signed a free trade deal with Japan. In January, 2021, the government said it would apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, which includes Australia, Canada, Japan, and New Zealand.

The biggest market, of course, is the U.S., which is still the world’s biggest overall importer. In 2020, UK exports to the U.S. increased 13.4% to $6.2 billion. The biggest exports to the U.S. in 2020 were gas turbines and other industrial machinery ($992.1 million), organic chemicals ($960.4 million), and autos and auto parts ($838 million).

Although the UK’s trade deal with the US didn’t expire until Jan. 1, 2021, companies have been rearranging their supply chains to avoid risk and prepare for new arrangements. Total trade with Russia increased 56% to $27.2 billion; with Hong Kong up 63% to $25.3 billion; and with Canada, up 0.4% to $22.5 billion. And total trade with China shrank a mere 2.4% to $82.3 billion.

Getting High on Your Own Supply

One sector that expects to suffer from Brexit is large industrial enterprises with complex supply chains, such as automotive, petrochemicals, industrial alcohols and plastics. For example, Germany’s imports of cars and car parts from the UK fell 16% to $4.2 billion in 2020. Shipments of organic chemicals declined 29% to $1.3 billion.

The issue is especially acute for companies whose supply chains span a tight network of North Sea ports and industrial hubs that include the ports of Antwerp and Rotterdam, and the Rhine/Ruhr area in Germany. The establishment of a globally powerful petrochemical hub harnessing North Sea oil, starring companies like BASF, Ineos and Solvay, is one of the great industrial victories of European integration in the past decades. And it’s what’s now been put at risk by Brexit.

The issue for companies reconsidering their supply chains is the cost of registering chemical products with European authorities. Under so-called REACH regulations, companies must register any chemical sold into EU. Once Britain leaves, companies will have to establish production in the EU or have their importer register the chemical. At the same time, anything made in the UK for shipment to Europe would have to be registered with British authorities. Registering a chemical typically costs over 50,000 euros a year. If sales are below that, it might not be worth making or selling in the UK, forcing costs up for British buyers.

Northern Ireland’s Trade Surplus with the EU

Finally, the UK government decided to leave Northern Ireland in the customs union in order to avoid a hard border in Ireland that might resurrect tension on the island. In the first months of 2021, Northern Ireland exported $606.6 million of goods to the EU, including autos and auto parts ($73.2 million), electronics ($41.1 million), and beverages and spirits ($34.6 million).

In return, Northern Ireland purchased $507.2 million of goods from the EU, giving this odd duck of a territory a nifty, and surprising, $99.4 million trade surplus with Brussels.

Exports to U.S., EU Drive China Export Comeback

The global economy appears ready for a strong rebound from the Covid-19 pandemic. Shipments from China, the world’s top exporter, increased a whopping 60.6% year-on-year to $468.9 billion over the first two months of 2021, according to Trade Data Monitor, the world’s premier source of trade numbers.

China’s strong bounce-back cements its path toward owning the world’s largest gross domestic product before 2030, and confirms the emergence of a 21st century economy dominated by three large blocs: China, and its two trop trading partners, the U.S. and the European Union.

In the first two months of 2021, Chinese exports to the U.S. totaled $80.5 billion, up 87.3% year-on-year, and those to the EU rose 62.6% to $73.7 billion. By comparison, exports to all of Latin America totaled $31.2 billion; to Japan, $25.2 billion; to all of Africa, $20.7 billion; and to India, $14.2 billion.

China was the first country to shut down because of Covid-19, but also, by far, the first to reopen. For the year , China registered 2.3% GDP growth, making it the only major economy to expand in 2020.

The Covid-19 pandemic and its reshaping the global economy as a work-from-home world with rising demands in communications technology has confirmed that the U.S. and EU are still the world’s richest markets-- 800 million consumers hungry for all the good China-based factories are pumping out, from computers and phones to shoes and toys, and able to pay for them.

China’s export numbers in the first two months of 2021 were roughly twice the jump expected by economists, and up from a 18.1% year-on-year increased in December. Imports leapt 22.2% to $365.6 billion, over a 6.5% increase in December. The first two months of the year are combined by Beijing in order to compensate for distortions caused by the Chinese Lunar New Year falling at different times in January or February. Businesses including factories close for as many as two weeks during that time.

Some forecasters have predicted a fall-off in Chinese exports as demand drops for masks and other Covid-related medical gear, and because the U.S. still has a raft of tariffs against Chinese imports in place. But the truth is that China’s manufacturing prowess has grown to the point where those are just drops in the bucket. The country is still the world’s factory.

If anything, the uncertainty created by Covid-19 has locked in supply chains, and caused buyers to rely even more heavily on China. And despite recent increases, China’s labor costs are still only a quarter of those in the U.S., according to the World Bank.

Some of the products with the sharpest increases are ordinary consumer goods. Exports of toys, for example, increased 96.8% to $5 billion; lighting fittings and parts rose 122.1% to $7.8 billion; and home electrical appliances were up 93.7% to $14.6 billion. By comparison, exports of medical devices amounted to only $2.8 billion, up 75.3%.

Exports of products needed to work from home have been increasing the last 12 months. The big reason for the eye-popping increase to start the year is that now other goods are rebounding, too. Exports of motor vehicles and chassis, for example, increased 106.8% to $4.2 billion. Shipments of footwear, which had been in decline, rose 32.8% to $7.5 billion.

For trading partners, the battle is still, as ever, to obtain markets within China. Thanks in part to new agreements which guaranteed purchases of soybeans and other products, China increased its imports from the U.S. 66.4% to $29.3 billion. Those from the EU rose 32. 5% to $45.9 billion. But both the U.S. and EU will have a difficult time competing against China’s geographic neighbors: China imports from ASEAN countries were higher than either, totaling $53.1 billion, up 29.9%.

Where the U.S. and EU still have an edge is in shipping high-value high-tech and industrial goods, as well as some essential bulk commodities. Chinese imports of high-tech products increased 35.1% to $113.8 billion; of auto parts, 47.8% to $6.7 billion; and of soybeans, 14.6% to $6.3 billion.

On Friday, Premier Li Keqiang said China expected to target a GDP growth of 6% or higher in 2021. And, it was recently reported, shipping lines have been ordering more vessels to handle an expected 2021 increase in demand.