President-elect Donald Trump’s suggested substantial taxes on imports are poised to shake things up in the industry. On the campaign trail, Trump vowed to enact a 10% to 20% raise on tariffs on nearly all imports, 60% or more on imports from China, and a 100% tariff on cars from Mexico.
While the Trump administration’s plans remain unclear, the anticipation of higher tariffs may lead importers to pull forward shipments. Some analysts note that the proposed tariffs could lead to a higher demand for domestic freight services since goods made in the U.S. would need to be transported across the country.
However, Jason Miller, associate professor of supply chain management at Michigan State University and interim chair of the Department of Supply Chain Management, pointed out that several academic research findings indicate Trump's proposed plans will not significantly boost domestic freight demand.
Higher tariffs don't lead to job growth, studies show
Research by the National Bureau of Economic Research found that there is no evidence that employment increased in industries shielded by tariffs, even when assuming constant returns to scale in manufacturing over the short run, as suggested by Chad Syverson in a 2011 study. On the contrary, job decline was observed due to retaliatory actions, and this trend is likely to repeat, Miller said.
In 2011, Justin R. Pierce found that manufacturing plants protected by antidumping duties did not increase their physical productivity but instead opted to raise their prices. Miller said that this suggests that domestic manufacturers may prioritize price hikes more than boosting output. Amiti et al. (2019) show that tariffs are fully passed on to consumer prices, implying an inflationary impact that could dampen demand and potentially lead the Federal Reserve to limit interest rate cuts.
Earlier in November, The National Retail Federation published a study on the effect Trump’s anticipated tariffs would have on six consumer products, including apparel, toys, furniture, household appliances, footwear and travel goods. In those six categories, the NRF said it would decrease American consumers’ spending power by $46 million to $78 billion for every year the tariffs are in place.
The report noted proposed tariffs would cause increased costs that would be too large for retailers to absorb, resulting in higher prices than many consumers would be willing or able to pay, particularly on products where China is the major supplier.
It estimated that consumers would pay $13.9 billion to $24 billion more for apparel; $8.8 billion to $14.2 billion more for toys; $8.5 billion to $13.1 billion more for furniture; $6.4 billion to $10.9 billion more for household appliances; $6.4 billion to $10.7 billion more for footwear, and $2.2 billion to $3.9 billion more for travel goods.
Research also shows that instead of shifting production back to the U.S., which usually leads to much higher consumer prices, goods impacted by Trump’s tariffs on China are often sent to other countries. These countries do some processing and then ship the goods back to the U.S., a pattern observed by another study.
On the other hand, Gregory Speier, a partner in the transportation group at law firm Reed Smith, said that the proposed tariffs will be welcomed by U.S. manufacturers, particularly those with foreign competitors. “Those foreign competitors will have a harder time engaging in the U.S. marketplace,” Speier said.
At the same time, Speier pointed out that tariffs may also result in trade wars that will cause unnecessary complexity to the global marketplace.
“For instance, for China to retaliate and close the door on U.S. commerce would adversely impact the economy. Mexico, too, now is threatening to retaliate to any tariffs imposed on Mexican imports to the U.S. with its own tariffs,” Speier added. “For now, as we inch closer to Trump’s second term, we are seeing an escalation of rhetoric and posturing as it concerns the potential for trade wars."
Nearshoring implications
As the proposed tariffs could make importing goods more expensive, Jon Man, a mergers and acquisitions deal origination consultant for North America at Freight Mergers, said that this could push more companies to move production closer to the U.S.
Speier said the complexity of cross-border operations will increase during the second Trump administration, particularly as geopolitical tensions increase with China, Mexico, and others.
“Trade tensions with China and Mexico may escalate, and cross-border operations may become more complex. However, nearshoring with Mexico and Canada under the USMCA could sustain essential trade while reducing costs," he added. "The proposed policies signal an increase in U.S. manufacturing, but may introduce challenges as industries adapt to a shifting global trade landscape.”
Man noted it’s worth keeping an eye on import volume, especially from countries targeted by the tariffs.
“A rush to beat tariff deadlines can impact freight capacity and rates,” he said. He added that trends in consumer spending can influence freight demand as higher costs due to tariffs might reduce consumer spending, affecting the volume of goods that need to be transported. With the new tariff landscape, Man said that it’s vital for fleets to stay informed and be adaptable to navigate potential challenges.
DAT Chief of Analytics Ken Adamo told CCJ sister publication Overdrive that while the details of Trump's foreign trade and tariff policies aren't entirely clear, "on the whole, we expect his current platform to be bullish for Mexico cross-border and bearish for ocean freight."
