Trump’s tariffs already rattling world trade

The mere spectre of higher rates is already warping supply chains, as firms scramble to import goods – and even Brompton Bikes is eyeing its first US factory.

(FILES) Cargo shipping containers and cranes are seen at cargo terminals as part of the Port of Baltimore in Baltimore, Maryland, June 12, 2024, following the reopening of the shipping channel in the Baltimore Harbor after the Francis Scott Key Bridge collapsed. US President-elect Donald Trump said November 25, 2024 he intends to impose sweeping tariffs on goods from Mexico, Canada and China, prompting a swift warning from Beijing that "no one will win a trade war." In a series of posts to his Truth Social account, Trump vowed to hit some of the United States' largest trading partners with duties on all goods entering the country. (Photo by SAUL LOEB / AFP)

West London has been the home of Brompton Bicycle since the 1980s. Each year, close to 90,000 foldable bikes roll off the production line in Greenford, Ealing, destined to be pedalled by commuters the world over.

However, Britain’s largest bike manufacturer may soon be forced to hunt for a second home on the other side of the Atlantic if Donald Trump makes good on his promises to impose tariffs on foreign goods. Will Butler-Adams, Brompton’s chief executive, says: “We would have to consider setting up a facility in Detroit, assembling bikes there … We have thought about how we would do it. It would be inefficient because it’s much better to make all your bikes out of one place. But we could do it if we had to.”

That will be music to the ears of Trump, who hopes the trade barriers he plans to impose when he retakes office will bring jobs back to the US. Tariffs have become a cornerstone of his economic policy: on the campaign trail, Trump hailed the word as the most beautiful in the English language. “It’s more beautiful than love, it’s more beautiful than anything,” he told the podcaster Joe Rogan.

But economists warn that trade barriers could fuel inflation and harm US growth. There is evidence that the mere threat of protectionism is distorting global trade, as US firms rush to import goods before Trump gets into office – exacerbating a surge in shipping costs.

So how will the world cope with Trump tariffs 2.0, and how are they warping trade before they have been passed?

In Trump’s first term, he imposed tariffs on goods, such as washing machines and solar panels, disproportionately shipped from China. US allies were also affected by tariffs on steel and aluminium. The Biden administration largely maintained these measures, and even hiked tariffs on certain Chinese goods.

What has Trump said about tariffs?

This time round, the trade barriers will be extensive. Trump is proposing a 25 per cent levy on all goods from Mexico and Canada on the first day of his second term, and a 60 per cent tariff on all Chinese imports. He has also suggested that goods from the rest of the world would be met with a universal 20 per cent tax.

In 2023, the US imported just over $US3 trillion ($4.8 trillion) worth of goods, which brought in about $US80bn of revenue to the government. This was paid by the importers, rather than the foreign sellers. But the evidence from Trump’s first round of tariffs shows it is the consumer who ends up footing the bill, as companies pass on import costs through higher prices. Trump’s 50 per cent washing machine tariffs led to the price of those goods increasing by 12 per cent.

Gary Hufbauer, a senior fellow at the Washington-based Peterson Institute for International Economics, says: “If he follows through with this, it will definitely increase the price level and that will irritate a lot of people.” The PIIE estimates tariffs will reduce the disposable income of all Americans, but disproportionately those on low incomes.

It is also likely the measures will spark a tit-for-tat; officials in Mexico have indicated they would hit back with their own tariffs on US goods. American companies that rely on global markets could find themselves at the sharp end.

Take the Stratocaster, the guitar of choice among rock musicians from Jimi Hendrix to Eric Clapton. The US company Fender manufactures its “Strat” in five locations – Mexico, America, China, Indonesia and Japan – each at different price points. A US-made Strat retails at $US1200 for professional musicians, while the Chinese-made “Squier” counterpart is sold for less than half that. Onerous tariffs on the cheaper guitars could close off that lower end of the market.

Some US firms are not waiting around and have ramped up their imports.

Marco Forgione, director-general at the UK Chartered Institute of Export and International Trade, says such tactics are known as “front-loading”. “They don’t want to get caught up so they are ordering in advance, bringing forward orders and trying to get those shipped in before any tariffs are imposed,” he says.

Chinese outdoor furniture manufacturers and German winemakers have reported roaring demand from US buyers. Chinese ports also reported double-digit growth in container demand.

Costco, one of the biggest wholesalers in the US, has brought forward imports. Gary Millerchip, its chief financial officer, told analysts: “We’ll look to pull forward inventory buying, which actually we’ve done already because of some of the unpredictability around shipping.”

Firms outside the US are feeling the knock-on effects. Lynsey Harley, the chief executive of Modern Standard Coffee, a coffee roaster in Fife, Scotland, says wholesale prices, already at record highs because of bad harvests in Vietnam and Brazil, have risen further due to front-loading by US buyers.

“People are thinking, ‘Well, if I import coffee before inauguration, maybe I’ll save myself some money in the long run.’ That has an impact on the price, which is just not helpful,” she says.

Front-loading has been a boon for the shipping markets. Figures from data provider Xeneta show freight rates between the US and the Far East this January are about twice what they were last year.

Emily Stausboll, a senior shipping analyst at Xeneta, says rates were already on the rise because of potential strikes at US ports and conflict in the Middle East.

“When you add the unpredictability of Trump’s trade policy into the mix, you begin to see why it is so difficult for shippers to manage supply chain risk and freight-spend in the face of such complex and wide-ranging threats,” she says.

Some believe that the threats of disruption may be slightly over-egged. Last time, Trump’s tariffs led to a strengthening of the dollar, which made imports cheaper and undid some of the effects of the tariffs.

Accounts filed for Brompton last week showed profits were almost wiped out in the year to last March.

The Times