The Impact of Potential Trump Tariffs on the Maritime Industry

The maritime industry is bracing for potential disruptions as discussions around new tariffs under the Trump administration gain traction. Starting in late winter and early spring of 2024, the logistics sector began front-loading in anticipation

of these tariffs, a strategy familiar from previous Section 232 and 301 processes. However, this time, the tariffs could be enacted under the International Emergency Economic Powers Act (IEEPA), posing significant threats to companies’ margins and driving up inflation.

Understanding the Scope of IEEPA Tariffs

Safiya Ghori-Ahmad, Senior Director of global public affairs at APCO, explains that the impact of these tariffs could be swift and far-reaching. The Trump administration might use IEEPA to target specific countries, industries, or a combination, leading to immediate cost increases and reduced demand for imported goods.

“If President Trump uses IEEPA to impose tariffs on imports, the tariffs could be applied immediately, increasing costs for importers with goods arriving at US ports,” said Ghori-Ahmad. This could be particularly problematic for entities with contracts that do not allow for passing on cost increases to end customers.

Immediate Impacts on Ocean Freight Rates

Ghori-Ahmad advises clients to communicate directly with consumers about the immediate impact of tariffs on all imported goods, from automobile parts to fresh produce. Josh Teitelbaum, senior counsel of Akin, highlights the swiftness with which President Trump could impose tariffs under a national emergency.

“We could go from a national emergency declaration to new tariffs in place in less than a week or shorter,” said Teitelbaum. He outlined a two-step process: first, the President declares a national emergency identifying a threat, and then issues an executive order detailing actions to address it. This process could lead to new tariff rates being programmed into Customs systems almost instantaneously.

Global Reach of Tariff Threats

Unlike previous tariffs focused on China, the current threat extends to all countries, including key US trading partners like Mexico and Canada. Teitelbaum, who served in the Department of Commerce during the Obama administration, warns that these tariffs could be used as negotiating tools, potentially going into effect for some period.

Smaller to medium-sized companies, lacking the economies of scale of larger corporations like Walmart, would be most impacted. Shippers might try renegotiating with clients to share the increased tariff costs, but contractual agreements could limit this option, forcing companies to absorb the costs and find future savings.

Misconceptions About Tariff Payments

Despite political rhetoric suggesting China pays the tariffs, the reality is that shippers are responsible for these payments, as evidenced by Customs transaction receipts. The initial round of Trump tariffs did not significantly shift manufacturing out of China; instead, it expanded China’s manufacturing dominance in other Asian countries, as seen during COVID when Vietnamese manufacturing plants struggled due to lockdowns in China.

Conclusion

The potential imposition of new tariffs under IEEPA poses significant challenges for the maritime industry. Companies must prepare for immediate cost increases and potential disruptions in supply chains. Understanding the scope and impact of these tariffs is crucial for navigating the complexities of global trade in the coming years.