A game of who blinks first is underway between the U.S. and its neighbors on either side of its border. After several weeks of uncertainty, the Trump administration finally implemented its much-touted tariffs on March 4. However, with the market, experts, and impacted countries reacting wildly with mixed opinions, President Donald Trump has again signed an order pausing many of the tariffs on Canada and Mexico for another month, with them now set to resume on April 2. Meanwhile, Canada opted for reciprocal tariffs when the U.S. tariffs landed, with them likely being paused as well until the U.S. tariffs resume.
Continue reading as we dive into the reactions to tariffs and their potential impact on economies, trade, and shipping and ocean freight.
New Tariffs Could Increase Inflation Across US
President Trump’s recent tariff announcements on goods from Mexico and Canada, as well as additional tariffs on goods from China, are expected to raise prices across the United States.
Retaliatory tariffs from Canada and Mexico also have been outlined, with Canada applying 25% tariffs on over $100 billion worth of U.S. goods. According to Charles van der Steene, president of North America for Maersk, this global tariff exchange will likely sustain inflationary pressures in the mid to long term. In contrast, Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent have expressed that these tariffs will not lead to significant inflationary effects, suggesting that other countries might bear their costs.
Despite the ongoing debate, tariffs are reshaping international trade dynamics. As manufacturers seek alternatives to Chinese production capacities, companies like Maersk are now spending on building their infrastructure in India.
Tariffs Impact Supply Chain Dynamics on US Inventory and Warehousing
In February, the Logistics Managers’ Index reported notable changes among supply chain managers due to anticipated tariffs. The index showed significant increases in inventory levels and associated costs, with the inventory levels subindex rising to 64.8 and inventory costs to 77.3.
The increased inventory levels indicate that companies are stockpiling goods as a precautionary measure, likely in response to new tariffs on goods from Mexico, Canada, and China. According to the report, the inventory growth is the fastest since October 2022, and the rise in warehousing costs is linked to the larger volume of imports stored at wholesalers and distribution centers.
As February progressed, inventory expansion slowed, yet costs related to inventory and warehousing surged, indicating that businesses are likely to maintain high inventory levels for some time. The problem with this approach is that it could strain warehousing capacity, which barely stayed in expansion territory, reflecting potential challenges in space availability.
Canada Responds to US Tariffs with Countermeasures and Economic Strategies
Following President Trump’s decision to implement tariffs against Canada and Mexico, the Canadian government, led by Prime Minister Justin Trudeau, announced a series of counter tariffs against U.S.-made products. They include 25% tariffs on approximately CA$30 billion worth of U.S. goods and a second round on CA$125 billion worth of products, including major items like cars and steel, set to take effect in late March. However, Trudeau has emphasized that these tariffs would only stay in place as long as the U.S. pursues trade actions.
So far, these announcements have impacted the Canadian economy, as evidenced by a significant drop in the Canadian dollar and stock market. Meanwhile, Canadian policymakers are actively engaging with Washington to mitigate the impact and restore stable trade relations.
US Shipbuilding Industry Has Negligible Share of Market
Over the last few decades, the U.S. shipbuilding industry has fallen far behind its Asian counterparts. While South Korea, China, and Japan churn out hundreds of large vessels yearly, the U.S. struggles to complete even a few. Meanwhile, China is leading the global shipbuilding market, accounting for more than half of world tonnage in 2023 and dominating new ship orders.
By contrast, U.S. shipyards contributed just 0.1% of global production last year, a drastic decline from the 1970s, when the country built about two dozen ships annually. The few commercial vessels still made in the U.S. come from two main yards, one in Philadelphia and another in San Diego. The Trump administration has proposed new measures to revive domestic shipbuilding, including massive port call fees on Chinese-built ships and requiring a part of the U.S. exports to be transported on American-built vessels. However, the proposal faces extensive financial and labor hurdles.
Trucking Industry Raises Concerns Over New Tariffs on Mexico and Canada
The American Trucking Associations (ATA) has warned that the latest tariffs announced on Mexico and Canada could lead to serious problems for the trucking industry and consumers. ATA President and CEO Chris Spear acknowledged the administration’s efforts to combat illegal trade across borders but cautioned that the tariffs could drive up costs and disrupt supply chains.
Spear highlighted that truckers transport 85% of the goods traded with Mexico and 67% with Canada. With the added costs from tariffs, cross-border freight movement could slow down, and the price of new trucks might rise by up to $35,000, making it harder for small carriers to invest in new equipment. Dean Kaplan, president of The Kaplan Group, pointed out that the tariffs could reduce freight volumes, increase carriers’ costs, and force changes to long-standing transportation routes.
A spokesperson from the Owner-Operator Independent Drivers Association (OOIDA) echoed similar concerns, stating that smaller trucking businesses already dealing with a freight downturn could face further setbacks.
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