Trump tariffs will fuel supply chain inflation and consumers will pay the price, trade experts warn

Trade analysts are warning that new tariffs threatened by former President Donald Trump, which he doubled down on during Tuesday night's presidential debate, will create inflationary pressures in the supply chain and ripple through the broader economy.

Trump defended his trade policy during the debate, dismissing concerns that blanket tariffs of up to 20% on all imports and additional tariffs of 60% to 100% on goods from China will lead to higher consumer prices.

Judah Levine, head of research for Freightos, says if history is any guide, additional tariffs will fuel ocean freight rates. During the first Trump administration, as importers rushed to move goods into the country before tariffs went into effect, ocean container rates from Asia to the U.S. West Coast started rising sharply in July 2018, and doubled by mid-November, according to Freightos data.

Levine said the Biden administration's announcement this past May of planned tariff increases on certain Chinese goods, slated to go into effect August 1, also contributed to frontloading of products. The Biden tariff increases were postponed at the last minute by the office of the U.S. Trade Representative for an extended review period.

That tariff risk, along with the Red Sea crisis and the potential for a port worker strike in October, contributed to an early and strong peak shipping season this year, Levine said, with rates from Asia to the U.S. West Coast nearly tripling from May to mid-July — to as high as $8,000/forty-foot equivalent container unit.

"If Trump wins the election, we are likely to see an immediate increase in import volumes as importers will want to fast-track some cargo in anticipation of new tariffs," said Lars Jensen, CEO of Vespucci Maritime. "Such new tariffs might come late January, hence leaving a very short window to get goods imported prior to tariffs."

Any increase in freight demand will fuel rates, said Peter Sand, chief shipping analyst at ocean freight rate intelligence platform Xeneta.

"Shippers react to supply chain threats by rushing to import as many goods as possible as quickly as they can," said Sand. "Frontloading of imports has contributed to the massive increases in freight rates following the outbreak of conflict in the Red Sea and we will see the same behavior from shippers ahead of any new tariffs coming into force."

"When ocean container shipping markets increase, that cost gets passed down the line and ultimately it is the end-consumer who pays the price," Sand added. "It could be through increased cost of goods on the shelves or a limited choice in the products available."

Xeneta data shows the last time Trump ramped up tariffs on Chinese imports during the trade war in 2018, the ocean container shipping markets spiked more than 70%. The average spot freight rates increased from $1,503 per FEU (40-foot container) on January 1, 2018 to $2,604 per FEU by November 1, 2018.

"Raising barriers to trade is almost always a negative move," Sand said. "We saw the cost of shipping goods by ocean spike dramatically when Trump introduced tariffs back in 2018 and his latest proposals will simply be a case of history repeating."

Trump countered claims of higher consumer prices resulting from his tariffs during the debate by saying "We are gonna take in billions of dollars, hundreds of billions of dollars. I had no inflation, virtually no inflation, they had the highest inflation, perhaps in the history of our country."

Trump's tariff proposals come at a time when global ocean supply chains are already under immense strain due to conflict in the Red Sea and port strike risk.

Xeneta data shows spot rates on trade from the Far East to U.S. East Coast increased 303% between December 1, 2023 and July 1, 2024. Spot rates from the Far East to US West increased 389% during the same period.

"Whether it is trade wars or conflict in the Red Sea, geo-political disruptions are toxic for ocean supply chains and they are happening with a higher frequency than ever before," Sand said. "Shippers and freight forwarders dislike uncertainty because it reduces their ability to manage supply chain risk. This is why people who work or operate within the maritime industry embrace global trade and do not want to see tariffs or other barriers introduced."

The U.S.-China trade war and multiple rounds of tariffs from both Biden and Trump administrations, with the threat of more to come, has also led to increased nearshoring of supply chains with a focus on Mexico. According to a report released by Moody's on Wednesday, the proportion of Chinese imports to the U.S. fell significantly in the past two years, from almost 19% at the start of 2022 to only 13.5% at the end of 2023. Meanwhile, U.S. imports from Mexico increased to around 16% at the end of 2023, from 13.5% at the start of 2022, making Mexico the No. 1 of products to the U.S. market. China, bumped down to second place in trade with the U.S. at the end of 2022, was later supplanted by Canada, which moved up to No. 2 during the last quarter of 2023.

The increase of Asian nearshoring in Mexico is expected to be a part of the next review date under the United States-Mexico-Canada Agreement (USMCA), with the results of the presidential election likely to influence the outcome. On July 1, 2026, the U.S., Mexico, and Canada will confirm in writing whether or not to continue the agreement, or if one or more of the three parties decides to take the step of not renewing the agreement.

During the debate on Tuesday night, Trump renewed claims he has made in the past about Mexican manufacturing linked to China. "They're building big auto plants in Mexico, in many cases owned by China. ... They're building these massive plants, and they think they're going to sell their cars into the United States because of these people [Biden administration]," Trump said.