What Shippers Need to Know About Trump’s Proposed Tariffs

In order to prevent additional challenges, companies should focus on what they can control. This means investing in visibility and risk monitoring to help handle whatever’s ahead while ensuring that their operations are agile enough to respond.

Thawatchai Images Adobe Stock 887488415
Thawatchai Images AdobeStock_887488415

President-elect Trump’s proposed plan for tariffs will mean huge disruptions for supply chains. Tariffs are not paid by other countries, which means that US importers will be responsible for paying them, and these costs will ultimately get passed onto the consumer. In turn, this will potentially lead to higher freight rates with lower volume, which means everyone will be spending more and getting less in return.

While this is all cause for concern, a better understanding of the tariffs’ potential problems can help shippers prepare for—and even benefit from—what's ahead. 

The pitfalls of U.S.-centered manufacturing

Theoretically, high tariffs will encourage U.S. companies to prioritize manufacturing operations within the US, which will in turn boost the economy. However, as a counter-offensive, other countries might implement tariffs on U.S. goods and potentially services as well, which could have a massively negative impact on the U.S. economy. In other words, rather than protect U.S. interests, there is a wide belief that Trump’s tariffs could quite possibly drive up inflation. In turn, businesses will struggle to not only get the resources they need, but also to sell their finished products. 

There are also significant doubts as to whether real change can happen in a 4-year horizon and whether tariffs will be the catalyst to drive urgency or commitment. Creating a U.S.-centered manufacturing hub would require intensive labor, and we’re already suffering from warehouse worker and driver shortages. These shortages could be made even worse with Trump’s proposed deportations, since undocumented workers make up a large portion of the existing supply chain workforce, including 14% of construction workers. 

Promoting U.S. manufacturing capabilities will also require huge financial investments and time. As an example, infrastructure such as chip-making facilities requires years of investment to enable. But even after the CHIPS Act—which sought to boost the U.S.’ competitiveness in semiconductor manufacturing—and the implementation of the semiconductor foundry in Arizona, the nation saw a limited increase in operations, with limited global productions moving to the country. Thus, it’s possible that all of these investments might be for naught, or that they could even have significant repercussions on the U.S. economy in terms of time, money, and resources spent.  

The impact on other countries

Trump’s tariffs are currently slated to be 10-20% on all foreign imports, with significantly higher rates for products from China and countries not leveraging U.S. currency. China is one of our Top 3 trading partners, as is Mexico, which continues to grow in its "onshoring" capability for final assembly and finishing of U.S. products. Along with Trump’s imposed tariffs, this country is also set to see more restrictive trade agreements that could lead to significant supply chain challenges. This essentially means that two of our three main trading partners will have additional reasons to potentially create their own tariffs on U.S.-supplied goods and services, which could be severely limiting in the long-term, as evidenced by the aforementioned obstacles to a solely U.S.-centered manufacturing environment.  

Other countries will also experience — and in turn, create—supply chain challenges due to tariffs. For example, in Ireland, the corporation tax reduction suggestion might bring the U.S. rate down to parity with the Irish rate. In turn, this would potentially impact the FDI in Ireland if there is no financial benefit to transacting there. This is an even bigger issue than it initially appears, since U.S. companies already struggle with repatriating cash to the United States. Worse, Ireland is not the only country where this might be a concern, as all of Europe is potentially at risk. 

How companies are preparing 

In order to prepare for what’s ahead, there are a lot of discussions about pulling forward inventory. However, to a certain extent, that ship has already sailed, as the lead time for inventory manufacturing is reasonably long across all sectors. Still, in the more recent future, shippers should expect a surge on imports, especially prior to Jan. 20, as companies store inventory in the United States before any tariffs are imposed. They should also prepare for delays, increased costs, and more general roadblocks across their shipments.

In short, there are so many macro-economic issues at play right now, and there is no sense that they will dissipate any time soon. The introduction of new, steeper tariffs will worsen these issues globally, as trade volatility is set to bring significant caution to supply chain spending at the corporate level, and the general uncertainty regarding what will happen in regards to tariffs makes it difficult for companies to plan their next steps. Fortunately, it’s not all doom and gloom, as there is some skepticism as to the true breadth of potential tariffs. Additionally, we’re all in the same boat of trying to figure out what happens next, and there are ways to ensure we have the latest data and support as it becomes available.  

In order to prevent additional challenges, companies should focus on what they can control. This means investing in visibility and risk monitoring to help handle whatever’s ahead while ensuring that their operations are agile enough to respond. In fact, this advice is useful regardless of what happens with regards to Trump’s proposed tariffs. In that one small respect, maybe the tariffs are a good thing, as they’re encouraging companies to take preventative action before it’s too late.    

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