The Daily View: Next phase of tariff fallout begins
THE tariffs of US President Donald Trump are not wily bluffs; they are revenue generators for the US Treasury, paid overwhelmingly by Americans. The higher the tariffs and the longer they remain, the more the treasury becomes addicted to the revenue, and the worse it becomes for US container shipping demand.
The initial Trump 2.0 effect on shipping was mainly on timing: a rotation of import front-loading and order cancellations. The next phase will be more about gradually worsening pressure on US containerised volumes.
Demand downside has been limited so far by the tariff lag effect.
US importers front-loaded before deadlines and still have non-tariffed goods on their shelves, they’ve ‘eaten’ the tariffs themselves to stave off price hikes, and they’ve used bonded warehouses to delay the day of reckoning.
This month marks a turning point. The Liberation Day tariffs have been reinstated, at lower levels than on April 2 but still historically high and well above the 10% baseline.
US businesses now accept that they will be paying higher import taxes for longer. There are widespread reports that bonded warehouses are being emptied, meaning that US importers believe future tariff rates will increase, not decrease.
How could the shipping demand scenario change later in 2025 and in 2026?
It could get worse if other countries start retaliating. They largely haven’t so far, which makes sense. A working paper by International Monetary Fund economists argued that the best strategy is to not retaliate and focus instead on growing non-US trade.
That’s the best scenario for container shipping as well. Rate strength in other markets could compensate for weakness in US lanes, whereas a full-blown trade war would broaden demand destruction.
The base case could also change if Trump’s use of the International Economic Emergency Powers Act is struck down by the courts. The Federal Circuit Court of Appeals held a hearing on IEEPA tariffs on Thursday. Judges voiced considerable scepticism on Trump’s move.
But a final ruling will take time, and is likely to include a stay that would keep IEEPA tariffs in place until another appeal is heard by the Supreme Court, which returns from summer recess in October.
Even if the Supreme Court does rule against IEEPA tariffs, Trump has the authority under the Trade Act of 1974 to replace IEEPA tariffs with 15% blanket tariffs for 150 days, and he could use that time to go through the traditional section 301 and 232 processes to replicate IEEPA tariffs.
So, shipping’s only real escape from America’s self-inflicted demand destruction is if the lag effect winds down, inflation rises, more orders are cancelled, small- and medium-sized import businesses start collapsing, the US goes into a recession, and political pressure forces a rollback.
It would have to get a lot worse before the US container shipping outlook gets better.
Greg Miller
Senior maritime reporter, Lloyd’s List
Content Original Link:
" target="_blank">
