Donald Trump has won a second term in the White House with an economic policy pledging to revitalize American manufacturing and counter what the US regards as China’s unfair trade practices.
Ocean container shipping is a global industry feeding on international trade, so Trump’s strategy of higher import tariffs raises a number of key questions.
1. What is Trump proposing and why?
Trump has vowed tariffs of up to 20% on all imports into the US and additional tariffs of 60% on goods from China. The US already imposes tariffs in those ranges and higher on certain categories of goods, notably a 100% tariff rate on EVs aimed at protecting American manufacturers from what it deems to be China’s unfair trade practices.
High tariffs were at the center of Trump’s trade policy during his first term in office, but it should be noted this approach was continued by the Biden Administration.
2. What can we learn from Trump’s first term in office?
Back in 2018, Donald Trump escalated the US-China trade war through new import tariffs. Xeneta data shows this resulted in ocean container shipping freight rates spiking more than 70%.
US importers and exporters will be fearing more of the same this time around and higher tariffs will place upward pressure on ocean container shipping rates. But it would be unwise to assume an exact repeat of 2018, because there are key differences between then and now.
3. How will US importers and exporters react?
The knee-jerk reaction from US shippers will be to frontload imports before Trump is able to impose his new tariffs.
If you have warehouse space and the goods to ship, frontloading imports is the simplest way to manage this risk in the short term.
4. Will frontloading be at the same level as 2018?
There is likely to be even more frontloading of imports this time around compared to Trump’s first tariffs in 2018.
In 2018, tariffs came in several rounds, each with specified goods to be included, so shippers had to wait for those lists to be published. There was then two months or more before the tariffs were implemented.
This time, shippers may be working to the worst case scenario that all tariffs will be introduced immediately following Trump’s inauguration on 20 January, meaning the window of opportunity is much shorter.
Another key difference is the level of tariffs being introduced. In 2018, the rush for frontloading was for goods from China with a 25% tariff. Trump is now planning to tariffs of up to 20% on all imports into the US and more than 60% on China imports, so the incentive to frontload is even greater.
5. What are the risks of frontloading for shippers?
A sudden increase in demand on major trade lanes into the US will place upward pressure on freight rates and available capacity on some trade lanes.
Average spot rates from the Far East to US West Coast and US East Coast have remained relatively flat in the weeks leading up to the US Election, down -3.5% and -2.5% respectively since 15 October. It may be a case of shippers crossing their fingers until the outcome of the election was known – but many will now take action and that could lead to less available capacity and increased cost.
6. What can shippers do to reduce risk?
Shippers must use data to monitor freight rate developments and benchmark their market position. This means comparing the rates they are paying against other shippers as well as other carriers and freight forwarders.
It is also important to monitor rates on different trade lanes especially if a shipper is considering importing goods into the US via different ports than they ordinarily would do. Not all ports are created equal, so Xeneta customers are using the North America Routing filter within the platform to break down rate variances by both region and entry/exit point to identify the most cost-effective and operationally efficient alternative route.
Find out more about Xeneta North America Routing here.
7. The supply chain risks of a Trump presidency has been known for a long time – are shippers fully prepared?
2024 has been a brutal year for shippers and huge credit must go to stakeholders across ocean container shipping networks who have once again shown how resilient global supply chains can be.
Shippers have been working pro-actively throughout 2024 to manage the impact of conflict in the Red Sea while also having one eye on threats such as port strikes on the US East Coast and potential for another Trump presidency. This has seen frontloading taking place throughout the year, with monthly container volumes entering the US at an all-time high in August at 2.64m TEU (source: CTS).
This earlier frontloading may help to limit some of the impact of the Trump tariffs if shippers have already built some buffer in inventories.
8. What is the medium-term impact on rates?
In 2018, while average spot rates from China to the US West Coast did fall from the spike following the introduction of Trump’s tariffs, they did not return to the previous level.
Again, the situation is different in 2024 because average spot rates are already elevated, primarily due to the Red Sea conflict. The current average spot rates of USD 5 210 per FEU (40ft container) into the US West Coast and USD 5 820 per FEU into the US East Coast are 167% and 134% higher than 12 months ago.
If frontloading does lead to elevated spot rates into Q1 and Q2 next year it could place upward pressure on the long-term market. This would have implications for many US shippers because it would coincide with tender season for new long-term contracts.
9. What is the longer-term impact on supply chains?
In 2018, we saw China respond to US trade policy ‘aggression’ by imposing tariffs of its own, which added even more fuel to the fire, so there is a risk this situation could escalate further in the months and years to come.
An escalating trade war could see some shippers shift supply chains and import goods into the US on other trade lanes. Firstly, they may open factories in other countries in the Far East, but this takes time and comes at a cost. Businesses will be reluctant to lose the competitive benefits gained through well-established manufacturing and trade infrastructure in China.
It may be more likely that shippers import goods into the US via Mexico. This trade route has already grown in prominence in 2024 with record volumes shipped from China to Mexico, suggesting it is increasingly being used a back door into the US. Imports are up by 22.2% in Jan-Aug 2024 year-on-year, and the average spot rate is currently double up from half a year ago. Currently at USD 4 150 per FEU, following massive volatility that saw spot rates climb to USD 7 600 per FEU by mid-year.
10. What about the rest of the world?
Trump’s new trade policy is more radical than his first term in office, not least because it extends beyond the trade war with China with up to 20% tariffs on imports from the rest of world.
Once the full details of Trump's tariff framework is known, it may well be the case that other nations and trading blocs, such as the EU, respond in a similar way to China during the first trade war by imposing tariffs of their own.
For that reason it is important monitor ocean container shipping data on backhaul trades because these could also be impacted if a trade war with the US escalates at a more widespread global level.
Xeneta's Chief Analyst, Peter Sand, and Senior Shipping Analyst, Emily Stausbøll, explore the potential impact of a Trump presidency on the ocean market, and share their outlook for what looks to be another challenging year ahead.
Watch the on-demand webinar here.
