Tariff fallout not here yet — but it’s coming
Supply chain lags are temporarily obscuring trade war consequences
Bookings data and liner company reports confirm that US imports are falling fast as a result of Trump’s tariffs. The US stock market is behaving as if the inevitable economic damage will somehow be averted
IN THE 2021 film “Don’t Look Up”, a comet hurtles on a collision course towards Earth.
The Trump-esque US president views the comet as a profit centre; it is filled with trillions of dollars’ worth of rare-earth minerals to mine. Others see it as a catastrophe.
Near the end of the movie (spoiler: Earth is destroyed), the approaching comet becomes clearly visible in the sky.
One faction starts a campaign called “Just Look Up.” The US president starts a counter-campaign called “Don’t Look Up”, a motto that’s emblazoned on baseball caps (sound familiar?).
The movie was a heavy-handed metaphorical satire on climate change and/or Covid denialism, but four years later, the US is living through a version of this plot, not with a comet, but with a man-made threat: US President Donald Trump’s tariffs, which he sees as a profit centre and others see as economically cataclysmic.
US freight forwarder Flexport chief executive Ryan Petersen chose a different projectile than the film — he went with an asteroid, not a comet — but his message was the same.
Petersen told the Wall Street Journal, “If they don’t change the tariffs, it’s going to be an extinction-level, asteroid-wiping-out-the-dinosaurs kind of event. Only these aren’t dinosaurs. These are dynamic, healthy businesses.”
The “avert your eyes” behaviour lampooned in “Don’t Look Up” is now in full swing.
As in the movie, the US president insists all is well. “The tariffs are going to make us rich,” Trump said this week. Fewer ships arriving at US ports was “a good thing, not a bad thing”, he said, insisting that lower imports meant “we lose less money” to China.
“You better go out and buy stocks now,” urged Trump. “This country will be like a rocket ship that goes straight up.”
The US stock market has been on the rise for the past two weeks. Shares have recovered all that they lost following the Liberation Day tariff fiasco that ensnared the penguin-inhabited Heard and McDonald Islands.
Equity investors appear to be pinning their hopes on talks this weekend between the US and China, and expectations of a trade war de-escalation. Trump said on Friday that China tariffs could be lowered from 145% to 80%.
Tariffs of 80% would still be too high to move the needle, and even if there is a de-escalation, at least two months’ worth of damage to US trade flows has already been locked in.
The consequences of tariffs have yet to show up in import statistics because of the inherent transit-time lag in container shipping supply chains. Official port numbers for May, the first month that will be affected, won’t be released until mid-June.
After imports inevitably fall, there will be a further lag as US inventories draw down. According to Maersk chief executive Vincent Clerc, US companies are doing everything they can to extend their inventories; he also noted that inventories won’t dry up all at once.
Bookings data and departures data from Vizion shows a sharp drop in cargo volumes headed to the US from China, which is only partially offset by gains from Southeast Asian sources. Container lines have confirmed the declines.
US ports are facing an initial sequential drop of at least 20% versus pre-tariff levels due to cancelled and paused orders. That could turn out to be conservative. Vizion’s numbers are higher.
A sequential 20% plunge would be huge, on par with the brief decline after the initial Covid lockdowns in China and the more extended decline during the global financial crisis.
What is the cargo value of such a decline? The general rule of thumb is that the average value of US-bound cargo is around $40,000 per teu; last year’s statistics are in line with this number.
According to Descartes, the US imported 2.4m teu in April, prior to tariff fallout. On a back-of-an-envelope basis, a 20% drop from that level in both May and June would total 964,000 teu, equating to a staggeringly high cargo value of $38.6bn.
The imports that have been halted or cancelled represent goods that US businesses could have otherwise sold at a profit in retail outlets, or used as inputs for American-made goods.
Importers of cargo that is still coming from China will pay oppressively high US taxes in the form of tariffs.
Recent quarterly filings make clear that US businesses will bear a lot of this cost, to the extent it can’t be passed along to consumers in the form of inflation. Apple puts second-quarter 2025 tariff costs at $900m. Ford puts full-year tariff costs at $1.5bn, Mattel at $270m.
Whether it’s added costs to US businesses or added costs to US consumers, it’s a negative for shipping demand. The tariff comet hasn’t landed yet, but it’s coming.