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“Trump’s import tariffs are hurting US shippers”

Analysts at freight rate benchmarking platform Xeneta warn that Trump’s “America First” trade policy on import tariffs is hurting US shippers.

Re-elected US President Donald Trump did not immediately make good on his campaign promise to impose comprehensive import tariffs. However, due to the uncertainty surrounding his trade policy, US shippers are bracing for chaos in the supply chain.

Shortly after his inauguration on Monday, Trump said he was “thinking about” imposing his proposed 25% tariffs on imports from Mexico and Canada on 1 February. He did not immediately implement the previously threatened tariffs of 60% on goods from China and 10-20% on goods from the rest of the world, but instead ordered an investigation into “trade deficits and unfair trade practices, as well as alleged currency manipulation by other countries”.

Peter Sand, principal analyst at Xeneta, a platform for ocean and air freight information, said: “Trump is portraying his trade policy as ‘America First’, but the people it hurts the most are US shippers. We know tariffs are coming – we just don’t know when, where and which categories of goods will be affected.” This uncertainty makes managing supply chain risk an almost impossible task.

Worst case: blanket tariffs against China and the rest of the world

“The worst-case scenario is that Trump announces blanket tariffs against China and the rest of the world at the same time,” Sand continues. “The rush to import goods into the US before the tariffs come into effect could cause chaos in global supply chains and drive up already high freight rates.” Data published by Xeneta showed that rates for ocean container shipping rose by over 70% when Trump increased tariffs on China imports during the 2018 trade war.

In the critical trade between China and the US West Coast, average spot freight rates rose from US$1,503 per FEU (40-foot container) on 1 January 2018 to US$2,604 per FEU on 1 November 2018. The rush to import goods into the US before the tariffs took effect could cause chaos in global supply chains and drive already high freight rates even higher.

Current spot rates from the Far East to the US West Coast are US$5,234 per FEU. This is 29% higher than twelve months ago, mainly due to the impact of the conflict in the Red Sea. If rates increase by 70% from today’s levels, as they did in 2018, the market would reach an all-time high, surpassing the previous record set by Covid-19.

Collapse in freight rates

“A ceasefire between Israel and Hamas could lead to a collapse in freight rates if container ships return to the Red Sea in large numbers, but this is far from certain,” says Sand. Shippers could not use any further uncertainty from Trump’s tariff policy.

“Shippers want to take decisive action against these geopolitical threats,” the chief analyst continued. “In the short term, this may mean stocking up if they know when the tariffs will come into force and which goods will be affected. In the longer term, they may try to move their supply chains out of China to countries such as India or neighbouring Southeast Asian countries if the trade war escalates dramatically. “However, shippers will not commit to these financial investments and massive supply chain disruptions based on rhetoric and political posturing.”

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Copyright: © Xeneta

Caption: Peter Sand (© Xeneta)