Is an import boom looming ahead of Trump presidency?

Getty Image

Supply Chain Management Review

Straight Talk with Brian Straight, November 10. 2024

So, now we know. Come Jan. 20, 2025, the U.S. will have a new president, and it is a familiar face: Donald Trump. What does that mean for the supply chain? It’s likely a long-term waiting game as we wait to see what policies Trump will enact.He has promised the “largest deportation” in U.S. history, but some say that the complexities, cost, and logistics—not to mention expected legal challenges—will likely slow this. Trump has also promised tariffs and increased oil drilling. The latter is a bit of uncertainty as global oil demand is expected to slow over the next two years and there is some question as to whether the big oil companies will drill more when prices are lower. Since oil is a global commodity, OPEC+ members could also scale back their pumping if they see the price dropping too low.

Import boom

What we know initially is that there may be an increase in goods imported into the U.S. Lori Ann LaRocco, a global supply chain reporter for CNBC and contributor to gCaptain, posted on LinkedIn Wednesday morning that there is already increased interest in pulling forward freight.“My phone was already buzzing last night by some logistics execs who tell me they are receiving calls to pull forward freight and it is reminiscent of 2018,” she wrote. “As we all know, the more demand for that coveted box and vessel space will put pressure on capacity and drive up rates. The trade war has never gone away—it has become a way of life. Now we will see how the latest chapter in the trade war will impact logistics and the consumer.”Lars Jensen, a container shipping expert and CEO of Vespucci Maritime, a Copenhagen-based consultancy, agreed with LaRocco that the U.S. should expect a surge in imports.“This is not a political posting, but from a shipping perspective, we should expect an added surge in U.S. import demand in the short term as shippers with non-time-sensitive goods will bring in more goods prior to any new tariffs,” he wrote on LinkedIn. “As it is not known exactly how big such tariffs might be, nor where they will apply and when this would happen, it could amount to quite a demand surge.”There is also a potential ripple effect on warehousing space in the U.S. if manufacturers and retailers suddenly increase inventories.Jensen added that retaliatory tariffs could result in more global container imbalances long term. There is also the potential of an East Coast and Gulf Coast longshoremen’s strike come January (remember the October strike that was temporarily settled? Jan. 15 is the new deadline). Jensen sees increased uncertainty as to how a Trump administration may address a strike. “It also means that the issue related to a potential strike on the US East Coast from January 15 now has to be seen through the added question of whether or not a Trump administration would invoke Taft-Hartley and/or how they would engage with ILA and USMX to find an agreement,” he wrote.But, for shipping, the big question is the tariffs. Trump has proposed a variety of tariffs on foreign goods, ranging from 10% to 20% for all goods and 60% or more for goods from China. Any tariffs may also trigger retaliatory tariffs on U.S.-made goods, so the net impact of tariffs is uncertain at this time. Will they spur more American reshoring? More than likely, they will spur more investment in Mexico.

Why Mexico?

Cost, and the United States Mexico Canada trade deal. When Trump renegotiated NAFTA during his first term and it was replaced by the USMCA deal, one of the provisions was no tariffs on any goods coming from Mexico. Nearshoring was already underway before Covid, but once the global pandemic arrived and businesses realized they needed to diversify their supply chains, investment in Mexico skyrocketed. The reasons were simple: In 2020, the average manufacturing wage in China was $6.50 an hour compared to $4.82 an hour in Mexico. Add in the extra cost of tariffs on goods coming from China and it’s easy to see why more companies are investing in Mexico. Many of them Chinese companies.A 2023 AlixPartners survey found that companies are targeting a 40% reduction in their exposure to China with the U.S. (plus 30%) and Mexico (plus 10%) expected to see the biggest gains. The trend is not just moving away from China, but also to more localized manufacturing. Accenture surveyed 1,230 senior executives in 14 countries (350 from the U.S.) and 11 industries in the first quarter of 2023 and found that 85% of companies plan to manufacture and sell most of their products in the same region in 2026. Today, that number is 43%. In the U.S., 91% of companies intend to accomplish this, up from 52% today.In addition, sourcing regionally will almost double to 65% by 2026, up from 38% today. That number, at 50% currently in the U.S., is expected to grow to 82% by 2026. U.S. companies are investing an average of $65 million in reshoring and production facility relocation this year and expect that to accelerate to $188 million by 2026.Reshoring efforts picked up steam in recent years after the passage of several bills, including the CHIPS and Science Act, Infrastructure Investment and Jobs Act, Inflation Reduction Act, and the Build America, Buy America Act. Trump has suggested he would like to repeal the CHIPS Act.

USMCA is a big deal

There is another potential complication and uncertainty with a second Trump presidency. While the USMCA trade deal runs for 16 years, there is a six-year review clause where any country could make “recommendations for action” that could include tweaks to the deal, or even threats of pulling out, according to the Baker Institute. The six-year window opens in 2026.“In addition, as part of the review, the governments can also express their desire to extend the agreement. If all three parties do so, the agreement gets extended for another 16-year term,” the Baker Institute noted. “However, if all three parties do not confirm their desire to extend the agreement as part of the six-year review, they will meet again in the seventh year, and each year thereafter until the 16th year. If they cannot agree by the 16th year, the agreement terminates.”The Institute noted that Canada has already started internal discussions on potential issues, including tariffs on exports of lumber to the U.S., antidumping and duties on steel, and dairy import restrictions. If Mexico sees a decline in investment under a Trump presidency, it also may want to rework terms of the deal. Safe to say, USMC will become a potential flashpoint to watch in 2026.In the end, since many of Trump’s policies are short on details, it’s difficult to understand what impact they will have on the global supply chain. Courtney Rickert McCaffrey, EY’s Global Geostrategic Business Group Insights Leader, told me on a recent Talking Supply Chain podcast that businesses need some level of certainty. “A lot of C-suite leaders really want predictability and certainty in the environment they face,” she said. “That's actually more important … than maybe some of the specifics of what that environment is,” she said.We are now heading into our fourth different business environment in the past decade. As the U.S. transitions back to a Trump administration, that environment is likely to change again. Where it lands remains to be seen.