Alongside many other points of contention in the recent presidential debate, the candidates shared barbs on trade policy with a focus on the merit of tariffs on imports to the US.
The Biden administration has kept many Trump-era tariffs in place, increased others, and recently has announced plans to shrink loopholes like the de minimis exception which currently facilitate the surge of tariff-exempt e-commerce goods directly to US consumers from Chinese platforms like Temu and Shein.
But, as part of his planned policy in the event of a return to office, former President Trump has proposed applying across the board tariffs of 10% to 20% on most of the $3 trillion worth of annual US imports, and a minimum 60% tariff on all imports from China.
Tariffs increase the duties that importers of goods subject to those tariffs must pay to bring shipments into the US. These increases in duties paid represent, by far, the biggest economic impact of tariffs on importers and can lead to higher prices for consumers as well. But, as examples from the 2018 Trump tariffs demonstrate, tariffs can also have a spillover effect on container flows and costs for the overall North American ocean freight market in the periods just before and after new tariffs take effect.
Tariffs: The Freight Impact
In general, when tariffs are announced – if there’s enough time between announcement and implementation – many importers rush to move as much inventory as is feasible into the country before the increases go into effect.
This front loading increases demand for ocean freight, alters the more typical timing of container flows as importers stockpile inventory, and puts upward pressure on freight rates during this rush.
Should Trump win the upcoming election and follow through on these much more ambitious tariffs, not only would any announcement of these increases by his administration next year likely have an even stronger impact on ocean freight than those of 2018, but the election results in November and the anticipation of coming tariffs that would go with them could themselves be enough to trigger a rush and impact ocean logistics.
Here is how tariffs impacted the container market in 2018.
Trump Tariffs in 2018
Tariffs were a central part of the Trump administration’s trade policy with China. These Trump era moves included tariffs on $200B worth of Chinese goods announced in July 2018 and set to be rolled out as a 10% tariff in September and then increase to 25% on January 1st, 2019.
As many importers rushed to move goods into the country before the tariffs went into effect, Freightos Terminal data shows ocean container rates from Asia to the US West Coast started rising sharply in July 2018 and doubled by mid-November.
Though these container rate increases impact all shippers – whether or not their shipments will be subject to increased tariffs – importers rushing to beat the tariffs mostly will prefer increasing their shipping activity and causing their freight costs to double before the roll out, to paying a tariff increase later on.
Freightos research shows that at long-term average container rates, ocean freight costs for a 49” TV, for example, represented about 1.5% of the TV’s price tag (about typical or even a little high for the many goods like these for which container costs are spread across the hundreds of units that fit in each container). So even a doubling of container rates would only see shipping costs rise to about 3% of the price tag per unit, while the proposed tariff hikes would increase the cost to the importer of a minimum of 10% of the value of each unit, incentivizing shippers to rush orders in ahead of tariff roll outs.
This front loading also had an impact on overall annual container volumes.
The pull forward of imports before the January 2019 deadline meant that many orders that would have otherwise been placed in 2019 were moved up to 2018, leading to stockpiles of inventories and lower container volumes in 2019. National Retail Federation US ocean import volume data shows that the nine-year streak of annual container import volume growth to the US from 2009 to 2018 was snapped in 2019 as some of 2018’s total came at the expense of the following year.
A look at freight rates for the typical peak season months of July through October in 2019 likewise show little increase, reflecting that a significant share of that year’s potential volumes had been pulled forward in 2018.
Fast Forward to 2024
Tariffs likely impacted ocean freight this year as well.
This past May the Biden administration announced plans to increase tariffs to 25% – 50% on a more modest list of $18B worth of Chinese goods on August 1st. Importers expecting an August deadline started pulling forward volumes they otherwise would have imported later in the year or even in 2025.
Though not as far reaching as the 2018 tariffs, and not alone in pushing freight volumes up in Q2, front loading to avoid August tariff increases was one factor in the early arrival of ocean freight’s peak season this year.
The other drivers for the pull forward included the many shippers moving goods of all types earlier than usual to avoid possible Red Sea-related disruptions in late Q3 or Q4, and importers rushing to receive containers before a possible labor strike at East Coast and Gulf ports in October. These other factors likely had a much stronger impact on container volumes than tariffs would have alone, but the announcement of these tariffs were a definite contributor to the early start to peak season.
Ocean container imports to the US increased earlier than usual this year, partly due to a rush to beat tariff increases set for August. Source: National Retail Federation
Instead of a more typical June or July start, ocean volumes into the US began climbing in May this year, peaked in August and are projected to drop significantly earlier than usual too, in October. This partially tariff-driven increase in demand also drove container rates up to highs for the year in July.
Trump Tariffs in 2025?
If Trump secures a victory in the upcoming election and his administration announces tariff hikes more far-reaching than in 2018, the biggest economic impacts wouldn’t come from spiking container rates (which in any case would be temporary), but from increased costs to importers paying the new duties – which could be passed on as higher prices to consumers – and from potential retaliatory tariffs by China or other countries that could impact demand for US exports.
Nonetheless, tariffs like those proposed would likely have a stronger impact on ocean freight flows and rates than those seen in 2018. Moreover, the election outcome in November, along with the expectation of impending tariffs, might itself be enough to spark an early surge in ocean demand and prices. And if Red Sea diversions are still in place in November, rates would be climbing from levels already well above normal.
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