US President-elect Donald Trump's recent social media announcement that he intends to impose a 25% tariff on all goods entering the US from Mexico and Canada on his first day in office is expected to accelerate frontloading in anticipation of the potential tariffs and lead to increased rates.
Judah Levine, head of research at Freightos said it may be "unlikely" that tariffs like these could actually go into effect on January 20, even if Trump initiates these moves on his first day with the process for implementing tariffs takes sometimes several months, from start to implementation.
Nonetheless, the incoming US president's pronouncements alone could be enough to drive frontloading from importers and an increase in cross-border traffic and road and rail rates from Canada and Mexico.
Trump recently made the 25% tariff threat in response to illegal drugs and immigrants entering the US from these countries. He also said he would implement an additional 10% on all imports from China, though no date was specified.
In terms of Canada and Mexico, this recent announcement is an escalation of earlier Trump campaign statements that proposed 10%-20% tariffs on all imports from all countries, it is a significant development in terms of the intended timeline and would break with the first Trump presidency’s USMCA trade agreement.
Levine mentioned several potential effects that the implementation of such a tariff could have on global supply chains.
"[In terms of logistics], just as they did ahead of tariff rollouts in 2018, US importers from China may have already started frontloading ahead of potential tariffs, as suggested by the National Retail Federation increasing their November and December projections for US ocean imports by 9% just following Trump's victory," he said.
The Freightos head of research noted that this pull forward of demand leads to increased volumes and freight rates ahead of tariff introduction, and lower volumes and rates following.
"So we could expect increases in cross-border traffic and road and rail rates from Canada and Mexico this time as well," he added.
Levine noted that in trade volumes, tariffs on China resulted in a decrease in Chinese imports to the US since 2018, with Mexico seeing their trade with the US increase as a result (though Chinese exports to Mexico, often ultimately bound for the US also increased).
"So following actual tariff introductions, we could see some shift to other foreign sourcing partners where possible."
Meanwhile, the imposition of a 25% tariff on all goods entering the US from Mexico and Canada could ultimately lead to higher costs of goods.
"Following tariff introductions we could also expect the higher importing costs to be mostly passed on to consumers," Levine said.
He pointed out that in September, Canada and Mexico accounted for US$79 billion of imports to the US, with Canada accounting for 12% of total imports and Mexico for 15%.
Levine said Canada and Mexico are significant exporters of vehicles – Mexico is the largest exporter of cars to the US – and automotive parts, with most US crude oil imports coming from them, especially Canada.
"So price increases could be expected in these categories the most following tariff hikes," he further said.
