Global logistics companies told CNBC they have begun planning for a potential Trump victory in November and developing strategies needed to mitigate any additional tariffs. Mexico is a key import gateway in the escalating trade war with China that began and continues under Trump. During his tenure as president.
The plan comes after the former president said in February that he was considering a plan to impose tariffs of 60% or higher on Chinese goods and a 10% tariff on all U.S. imports during his potential second term. The program began after the tariffs.
Trump escalated his trade war rhetoric on CNBC’s “Squawk Box” Monday morning, saying “I believe very much in tariffs” and suggesting he could impose more tariffs on foreign goods if he wins a second term. .
The Trump administration has used authority under three trade laws to unilaterally impose tariffs without congressional approval. Currently, tariffs on various imported goods in the United States range from 10% to 25%.
DHL Asia CEO Niki Frank said in an interview at the TPM conference in Long Beach, California, last week that the diversification of supply chains away from China will accelerate if more tariffs are imposed.
“I think this will accelerate the current de-risking and diversification movement away from China and into other countries,” Frank said. “A 60% tariff will make it more attractive for people to move elsewhere,” he added. Frank said the Trump administration’s tariffs initiated a shift in supply chain strategies, which have become more sophisticated during the COVID-19 pandemic as customers consider moving factories and production out of China.
He expects any increase in tariffs during Trump’s second term as president would result in trade being redirected from China to Mexico to avoid the tariffs. This is already happening, with 15% of China’s trade moving across the Mexican border to the United States as Chinese companies set up factories in Mexico or use Mexican ports.Extra Chinese freight containers avoiding tariffs boost truck and rail company profits, rail boom union pacific It is the only Class 1 railroad serving all six major gateways in Mexico.It is also connected to the two largest railways operating in Mexico: Ferromex and Canadian Pacific Kansas City.
“We have tremendous potential,” Union Pacific President Beth Whited said in a recent interview with CNBC on the sidelines of the TPM conference about its Mexican operations.. “As you can see, people are really rethinking their supply chains and saying they’d rather keep some of those things closer to home and invest in Mexico to grow. We are fully capable of doing this. Mexico is an important part of our business and we are excited about the opportunity to leverage nearshoring as investment in Mexico continues. “
Paul Brashier, vice president of short-haul and intermodal transport at ITS Logistics, said companies are transitioning to Mexico as U.S. companies view Mexican ports as future gateways.
“We’re having some very good discussions with some very forward-thinking customers who are using the ocean to get around Trump’s tariffs, so I think the future will be exports from east to west to Mexico,” Brashear said in an interview. .” at TPM. “If you think about a Trump presidency, you can’t have China and Mexico being your enemy at the same time. So I’m curious to see where people are on in this administration. I feel like Mexico is heading toward failure as the future. I just think that The relationship between the United States and China will be difficult to repair.”
China-made cars trade with Mexico
Analysts believe that one of the industries where Mexican exports will grow is the automotive industry. Chris Rogers, head of global supply chain research at S&P, told TPM that one of China’s largest automakers is already considering setting up a factory in Mexico.
“One of the challenges with tariffs is, we like to say logistics finds a way, trade finds a way. And, you know, tariffs are just another obstacle. Whether it’s like the Red Sea, or excess demand in the pandemic era… . . . Tariffs are in the same category. So you end up with a situation where tariffs are imposed in one place, trade changes.”
In an interview with CNBC on Monday, Trump specifically stated that he would target the Chinese auto industry.
“If you put tariffs on China, they’re going to build…their car plants here, and they’re going to hire our workers,” Trump said. “We don’t want to get cars from China. We want to get China to use our workers. Cars made in America.”
Biden administration officials have also warned of the risk of China flooding into the U.S. auto market.
Globally, other countries likely to see more manufacturing expansion are Vietnam and Malaysia, Rogers said. “We’ve seen talk of 10 percent tariffs on everything from around the world, which could lead to huge inflation,” he said. “I think that’s going to lead to countries coming to the U.S. and negotiating some sort of preferential trade arrangement. To negotiate, that might obviously help free trade area partners like South Korea and Mexico. But that might be another reason why Mexico might do it better.”
Rogers warned that it is difficult to plan for a potential trade war scenario. “It’s worth remembering that tariff litigation was also brought against Vietnam during the Trump administration and that may resurface,” he said. “We do know that there are asymmetric risks with tariffs.”
Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, told CNBC that Mexico has been a factor in its members’ supply chain diversification strategies long before the trade war. “Tariffs have accelerated that decision a little bit, and COVID has accelerated that decision even more,” Gold said.
The implementation and feasibility of tariffs depend on the product category, he said. “Because there are categories of capabilities that China doesn’t have. That’s something we continue to tell legislators and regulators,” Gold said. “As much as you want people to leave China, companies are doing their best.”
John Taylor IV, logistics director at Berlin Packaging, said if packaging suppliers learned anything from the tariffs, it was to diversify their supply chains and make it clear to customers that there are at least two sourcing options.
“I don’t want to say we only source from China, but it drives us to build supply chains in other markets such as Europe, so if the 60% tariff does come into play, we have options, and it’s not just China, we have the flexibility to go into Thailand and Europe,” Taylor said.
Critics of the tariffs warn of widespread economic impacts. The tariffs imposed by Trump under Section 301 of the Trade Act of 1974 still apply to Chinese goods, and the Biden administration’s review, originally scheduled to be completed by the end of 2023, has been extended to May 31.
“We continue to wait for the Biden administration to provide the results of the four-year review, which is now more than five years old,” Gold said. “Unfortunately, trade has a negative connotation right now, but people need to understand how important trade is to us. … If we don’t import, we can’t export,” he said. “These imports help support millions of jobs. So that’s something we need to think about. We can’t string it all together because we’re losing opportunities overseas and we’re losing jobs here at home.”
“I think it would be an economic disaster if we put a 60% tariff on any country, let alone our huge trading partner China,” warned Peter Boockvar, chief investment officer at Bleakley Financial Group. “Unfortunately, it would be an economic disaster. , the president can enact these tariffs alone without congressional review.”
Critics also warn that the impact of inflation will be borne by consumers, yet inflation has not soared above historical averages during Trump’s presidency and tariffs.
S&P Global Research shows China’s share of imports of products the Trump administration has imposed tariffs has declined.
“They started with 18% market share in the U.S. and now it’s down to about 11%, and then you have 30% tariffs,” Rogers said. “So 60% tariffs could lead to another round of transformation. Now. The winner is partly Mexico, but also the ASEAN countries. That includes mainly Vietnam, Malaysia, Indonesia and others. So if Mexico should benefit, a new round of tariffs is coming, but it won’t be the only country that benefits.”
About The Author
