News / 'Tariff hell' leaves industries in limbo – 'not a great environment to plan'

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UPDATED 17.30 BST TO INCLUDE SECOND PAR

Yesterday the tariff landscape changed yet again, with a by now familiar abruptness, as the US president announced a 90-day pause on tariff hikes for most countries, while raising the rate on imports from China to 125%.

However, it was later confirmed that the administration had not included a pre-existing tariff of 20%, which is being added on top – bringing the total to 145%,

The European Commission also announced that despite “strong support from member states” for the adoption of the EU countermeasures, it “wants to give negotiations a chance”.

But EC president, Ursula von der Leyen, warned: “If negotiations are not satisfactory, our countermeasures will kick in. Preparatory work on further countermeasures continues… all options remain on the table.”

The series of announcements and changes of script since January has kept industries in limbo, unable to make strategic decisions on investment, expansion or shifts in procurement. A member of the Canadian Apparel Federation described the situation as “tariff hell”.

“This is not a great environment for companies to plan,” said Rick Watson, CEO of RMW Commerce Consulting. The normal legislative process, through Congress, gives companies time to look ahead and make adjustments, but executive orders take that buffer away, he noted.

There is a desire for planning security outside the US, often mingled with shock at the swiftness with which the new administration in Washington turned on partners.

“Many ask themselves if they want to deal with people who are unreliable. There is no planning security,” said Stephan Haltmayer, CEO of Germany-based forwarder Quick Cargo Service.

For the time being, obvious alternatives to sourcing from China – like Vietnam or Cambodia – are under threat of high tariffs, which also threatens to undermine the ‘China-plus-one’ strategy of procurement. One observer noted that Latin America had not been hit with high tariffs. However, there is broad agreement that in the current situation it is too early for such decisions.

Shifting to another origin country takes time.

“If we look at the China-plus-one trend, it typically takes one to two years for companies to make a full transition – it’s not something that happens immediately after a tariff announcement,” observed Bryann Lim, global sales and marketing executive at Taiwan-based forwarder Dimerco.

“When customers do start exploring new markets, their main concerns will be trade compliance and whether Dimerco has the local expertise to help them navigate regulatory requirements,” he added.

Moreover, there is the possibility that the next US administration could reverse the course of the current one. Bob Imbriani, SVP international of US-based forwarder Team Worldwide, reported a conversation with a US customer in the automotive sector contemplating manufacturing tyre valves. Today these are not produced in the US, for the most part, they come from China, apart from some production in Europe.

If Washington were to change rules and tariffs a few years down the road, US-made valves would be too expensive, he noted.

Dimerco has seen some customers rush goods to the US by air, with a corresponding rise in rates, but many shippers have hit the pause button on shipping to wait for clarity, Mr Lim reported.

“A lot of buyers and sellers are renegotiating contracts, which is leading to shipment delays and a ‘wait-and-see’ mindset across the market,” he said.

“One trend that’s really gaining momentum in the US is the use of free-trade zones to better manage merchandise processing fees and defer tax payments. Forwarders who operate FTZs are using them as an opportunity to provide more integrated solutions,” he added.

Orders currently in the pipeline cannot be cancelled because of tariffs, so many importers will have to bite the bullet and bring them into the US, Mr Imbriani said. He expects to get a full picture of how traffic develops over the next 30, 60, or even 90 days.

There is no doubt, however, that volumes will take a dive. Ben Hackett, founder of Hackett Associates and co-author of the Port Tracker published by the National Retail Federation, predicts US imports to be down at least 20% in the second half of the year.

“At present we expect to see imports begin to decline by May, and that they will drop dramatically during the remainder of the year,” he said.

“This will hit us. We will have lower exports to the US for the foreseeable future,” confirmed Mr Haltmayer.

US exports are also under a cloud. If the dollar goes down, this would favour exports, but retaliatory tariffs and anti-American sentiment could undermine this, suggested Mr Watson.

Team and other forwarders have been busy advising customers on likely repercussion from tariffs, such as an increase in their import bond.

“The import process is becoming much more proactive and detail-oriented,” Mr Imbriani said.

“Probably the biggest thing for an importer is to know the landed cost before he places the next order,” he added.