There has been a lot of noise about tariffs, particularly on goods from China. Depending on the day, we either hear that they are imminent or on the back burner. However, even though they haven’t been fully implemented, we are already seeing some impacts.
A 25% steel tariff, which is already in place for countries like China and Russia, has been pushed back (again) for EU countries. Canada and Mexico, too, have been given extensions on the tariff. However, US manufacturers are feeling the heat as well. With so much uncertainty, manufacturers in the US are at a standstill in terms of planning and strategy going forward.
What might happen if, or when, tariffs are fully implemented?
Tariffs and a Trade War
This would be the worst possible outcome.
According to Kimberly Amadeo of The Balance :
A trade war is when a nation imposes tariffs on imports and foreign countries retaliate with similar forms of trade protectionism. As it escalates, a trade war reduces international trade.
One could see how this round of tariff talk could easily devolve into a trade war between the United States and not only China, but our closest trading partners, Mexico and Canada.
When it comes to shipping, companies are certainly concerned. According to CNN, nearly 7% of the $200+ billion shipping market from Asia to the USA is put at risk by a China-US trade war.
Planning for the upcoming holiday season has already been put into a tizzy. Last year alone, some of the biggest retailers imported nearly $4 billion in TVs and other components that might be impacted by tariffs. What will happen to those Black Friday sales when big box retailers need to pay more to import cheap Chinese goods to fill their shelves? If they need to purchase more expensive domestic products, the costs will be further increased by the higher freight costs that are being seen across the US.
And that’s just Asia.
If a trade war were to take place, businesses of all types will be impacted. From steel, to automobiles, to electronics – a good portion of the US economy is currently in limbo.
Just this week, the US, for reasons of “national security,” has begun weighing restrictions on Chinese telecom companies including giants such as Huawei and Xiaomi. Restrictions on imports of such important players in electronics, particularly mobile phone makers, will have impacts that are far-reaching. If the US puts restrictions on Huawei, what’s to stop China from putting restrictions on Apple? Additionally, Foxconn, Apple’s main manufacturer of the iPhone, is headquartered in China. A worst-case scenario could be Apple needing to move its manufacturing altogether, or, at the very least, cause a huge impact on its manufacturing and shipping costs to get phones to American consumers.
Trade restrictions and tariffs do not exist in a vacuum. They are being proposed as a direct result of the increase in globalized trade. While many benefited greatly from globalization (none more than the American consumer), there are those that have been left behind. The American worker, particularly in manufacturing, have seen job opportunities dwindle in an increasingly global economy.
It’s no secret that many of these workers make up President Trump’s voter-base.
Additionally, domestic producers of goods such as steel, in particular, feel that China has been “cheating” by “dumping” cheap steel on the US market. Steel worker’s unions, industry lobbyists, and others have had the president’s ear regarding the steel tariffs. They, along with other workers who feel abandoned by global trade, have been the loudest voices in support of restrictions and tariffs.
Will Trump’s trade talk and action have positive or negative impacts for shipping and freight? No one really knows.
More than anything, the unknown is creating uncertainty which is always bad.
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