The tariffs implemented by U.S. President Donald Trump are more than simply bargaining chips; 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 accustomed to the revenue, and the worse it becomes for US import 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 import freight volumes, as the demand downslide 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. In other instances, they have absorbed the additional tariffs to stave off price hikes. Also, in many cases, they have used bonded warehouses to delay the actual customs clearance of cargo, which is the point where import duties are calculated and, in turn, billed to the importer of record.
The month of August 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. Latest reports show the average US import tariff is roughly 18%, the highest level since the 1930s. US businesses are now accepting the fact that they will be paying higher import fees for longer periods. 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 2026? It could get worse if other countries start retaliating. They largely have not thus far, which makes sense. A working paper by International Monetary Fund economists argued that the best strategy is not to retaliate and focus instead on growing non-US trade.
That seems to be the best scenario for freight volumes as well. Strength in other markets could compensate for weakness on US lanes, whereas a full-blown trade war would broaden demand destruction.
Some industry pundits feel international 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 contracting or even worse collapsing, the U.S. goes into a recession, and political pressure forces a rollback.
However, given what we have seen thus far from the Trump administration, namely the unpredictability of decision-making and the constant pivoting after policies are enacted, predicting where this ends up is anyone’s guess
For more information, contact David Lychek, Director – Ocean & Air Services.
