With the prospects of a new Trump administration entering the White House in January 2025, there has been much speculation on the ramifications of potential tariffs proposed during his 2024 presidential election campaign and their effect on the ocean transportation market. A look back at the actions around tariffs in the first Trump administration may offer some clues for the future.
The First Trump Administration Tariffs
Beginning in 2018, the Trump Administration announced a series of new tariffs:
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Section 232, Steel and Aluminum – In March 2018, the Trump administration imposed a 25% tariff on steel and a 10% tariff on aluminum.
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Section 301, Chinese Products—Trump also published in March 2018 a list of Chinese products subject to 25% tariffs, with some of those tariffs taking effect July 6, 2018, and others going live on August 23, 2018. In September, the US enacted another round of 10% tariffs on Chinese products.
While there have been some adjustments under the Biden Administration, the Section 232 and Section 301 tariffs have remained mostly intact during Biden’s presidency.
According to data from Xeneta, ocean container shipping freight rates spiked more than 70% during the tariff ramp-up period in 2018. This was a short-term phenomenon.
Interestingly, the Financial Times recently reported that Trump’s tariffs reduced global ocean trade by only 0.5%. (The U.S. accounts for 5% of global ocean imports, while US-China trade accounts for 1.4% of global ocean goods transport.) This was a long-term phenomenon up until the Covid-19 pandemic supply chain crisis.
Second Trump Administration Plans for Tariffs
“To me, the most beautiful word in the dictionary is “tariff”, and it’s my favorite word," President Trump at the Economic Club of Chicago on October 15th, 2024.
Trump has made various proposals on the campaign trail in 2024:
On Monday, November 25, Trump indicated that he would assign an additional 10% on China and 25% on Mexico and Canada goods.
Rolling Out of the (Potential) Trump 2.0 Tariffs
Trump’s campaign proposals may only be theoretical. On more than one occasion, he has referred to his tariffs as just a “figure of speech.” The prospects of tariffs can simply be used as a bargaining chip in a greater political negotiation. Based on his first term, though, it is more than likely that new tariffs will be introduced in short order.
Congress has the power to enact tariffs under the U.S. Constitution; but over time, Congress has deferred some of its authority to the president in the interest of national security. Trump can probably use executive action for tariffs targeted against China under the guise of national security concerns. The argument for executive action may be tougher for his universal tariff proposal against China and other countries, and ultimately, Congress may have to act, and/or the courts may have to weigh in on the matter.
The new Trump tariffs can take effect as quickly as day one of his second term.
Ocean Market Outlook on New Trump Tariffs
In the short-term, we can anticipate a surge in demand for ocean shipping as U.S. importers seek to frontload as much inventory as possible before the effective dates of new tariffs. The rates themselves may not spike as high percentage-wise as in 2018 based on the current elevated rate levels. The decline in spot rates that began in August has stalled out in recent times and may go back up incrementally in the coming weeks. For the immediate future, the concern is the confluence of three key factors – a potential second ILA strike on 15-Jan-2025, the imposition of new Trump tariffs, and an early Chinese New Year – creating a challenging market in December and January, which is typically a lull in the ocean shipping calendar.
In the long-term, the ability to nearshore or “friend-shore” may also be compromised if the tariffs this round are more pervasive – i.e. mitigating the risk of a dependency on China still does not offer a zero-tariff solution if the tariffs are universal in nature. Further concerns will arise based on the extent of the tariffs and how much they reduce global trade activity and dampen U.S. consumer spending with their expected inflationary burden. Tariffs typically lead to retaliatory tariffs, which lead to trade wars. Trade wars translate to less demand for ocean container shipping, leading to lower rates, which could be perceived as a silver lining for shippers in all of this.
With less than 2 months until Inauguration Day, much remains to learn on how the Trump administration realizes its vision of tariffs as a U.S. fiscal policy. Trump’s proposed appointees for Commerce and Treasury have pro-business track records. The US Trade Representative position nominee, Jamieson Greer, is an astute understudy of Trump’s USTR in his first term. He was the architect of the tariff policy in 2018 and 2019. Still, it is clear to many importers that the prospects alone of more tariffs are influencing the market to frontload goods prior to the first tranche of tariffs. The long-term concerns will come into greater focus as the Trump administration formally announces these new policies.
