In just over two months, US President Donald Trump has started what now looks like a full-blown trade war — and it turns out it’s worse than forecasters expected.
His “Liberation Day” tariff announcement on Wednesday was more comprehensive than expected, and China’s retaliatory measures were quicker and more hard-hitting than anticipated.
And while analysts will be digging into what this means for various trade lanes in different shipping segments, there is an overarching worry that is now front and centre for the industry: economic headwinds.
Anyone who has spent more than a minute in the shipping industry knows the effect that tariff-driven trade wars have on economic activity and trade flows. Now comes the difficult task of figuring out how much pain is in store.
Plummeting stock markets are one measure, as investors priced in the impacts of the worse-than-predicted trade war.
Shipping shares were in the red on Thursday, after Trump’s announcement, and again on Friday after China matched his new 34% tariffs.
Goldman Sachs estimated that Trump’s Wednesday tariff announcement will impose a weighted average tariff of 18.3% on US trade partners.
That’s three percentage points higher than the investment bank had expected.
Cumulative tariffs
While exemptions cut the total impact to a 12.6 percentage point increase on the total tariff rate, they also stack on top of other tariffs imposed by Trump’s government. Add it all up, and the US has raised its average effective tariff rate by 18.8 points, according to a note by Alec Phillips, Goldman Sachs Research’s chief US political economist.
All told, the bank warned that the increases will hit US GDP.
“Tariffs affect economic growth through their tax-like impact on real disposable income and consumer spending; their tendency to unnerve markets and tighten financial conditions; the impact of uncertainty about trade policy on business investment; and the modest offsetting effect of a narrower trade deficit,” Goldman Sachs Research wrote in its Briefings newsletter.
“While the personal and corporate tax changes that Congress is likely to pass will modestly boost growth, fiscal policy is unlikely to offset the hit from tariffs and immigration this year.”
And the trade moves are inflationary. The bank estimates that each percentage point of tariff will add 0.1 points to a key measure of prices.
The various US tariffs stack in different ways for different products and countries of origin.
Flexport, a digital freight forwarder, told clients on Thursday that cumulative tariffs on steel water bottles from China rise to 55.2% even though they are not subject to the reciprocal tariffs. A microwave from China faces tariffs that add up to 83% of its value, even though it is not subject to steel tariffs.
But after tariffs on vehicles and parts, just try to buy a steel car bumper from China. That stacks up to 97.5%, according to Flexport.
Economic fallout
Rising prices will have economic fallout.
Before Trump’s Liberation Day announcement, JP Morgan Research estimated in March that US tariffs would cut real GDP by 0.3% to 1.6%.
Then its analysts trimmed that to 1.3% after the announcement of the automotive tariffs.
After Wednesday’s announcement, the Yale University Budget Lab estimated that the new tariffs will take GDP growth down by half a percentage point, with all tariffs so far taking 0.9% off the growth for 2025.
That could recover next year as production and supply chains adjust to the changes, the Yale researchers said.
So as tariffs shake up trade flows, they could also reduce activity, and demand, from the world’s largest economy. It is unclear whether Trump will achieve his stated goal of having more production at home, which could also let some air out of world trade.
But disruption has a way of having surprising impacts in shipping, especially if it reshapes trade routes.
Then there’s the other side of the trade war: retaliation.
China’s response
The China desk at investment bank Evercore ISI expressed surprise on Friday that Washington and Beijing were in a “full-on” tariff war.
Analysts Neo Wang and Gin Wang said China pulled the trigger on the 34% blanket retaliatory tariff sooner than it typically does.
“This earlier-than-expected announcement looks on purpose to inflict further
damage on [the] US stock market while China is on holiday Friday and market closed,” they wrote.
“Government agencies in Beijing overtimed to put out those announcements. The move is at least a face-saving one assuming China opens with a sell-off next Monday, if not also to put more pressure on Trump.”
The potential impact of the move is not clear.
The Evercore analysts said Beijing may feel that tariff escalation is close to its end and could be looking to boost its bargaining chips.
But it’s a strategy that might not work.
Even though many believe Trump’s tariffs are meant as an opening move in negotiations, there is no clarity as to how the trade war is going to play out in the months ahead.
