Trump’s tariff war threatens cargo volume decline in shipping industry

U.S. President Donald Trump ignited a tariff war, causing the shipping industry to become tense. This is because a retaliatory tariff could lead to higher prices, a decrease in demand, and ultimately a reduction in cargo volume.
On the 4th (local time), President Trump signed an executive order imposing a 25% tariff on Canada and Mexico and a 10% tariff on China. The executive order includes a ‘retaliatory clause’ stating that tariffs could be increased if the counterpart country responds to U.S. measures. China and Canada have expressed intentions to bring complaints to the World Trade Organization (WTO), while Mexico has indicated plans to announce specific countermeasures. However, there remains a possibility of changes at the last minute, as President Trump is scheduled to discuss tariffs with the leaders of Canada and Mexico on the 3rd.
The shipping industry anticipates that the implementation of tariffs will restrain global trade volume. The Shanghai Containerized Freight Index (SCFI), regarded as a key indicator of global maritime shipping costs, has been on a downward trend. On the 17th of last month, the SCFI closed at 2,130.81 points, a 15% decrease compared to the beginning of the year (2,505.17). This drop below the 2,100 mark is the first occurrence since November 22 of last year. The shipping industry interprets that concerns over decreased trade volume have been preemptively reflected in freight rates.
If the tariff war continues, container cargo volume will decline. This is because the taxable items are primarily finished goods that must be transported in containers. There is a precedent for a sharp decline in cargo volume when the Trump administration imposed tariffs on China. According to the Korea Export-Import Bank, during the first year of Trump’s first administration in 2017, the global cargo volume growth rate was 5.7% compared to the previous year, but after tariffs were imposed on China, it dropped to 4.4% in 2018 and 2.2% in 2019.
South Korean exporting and importing corporations are also expected to face damage. The Korea Institute for International Economic Policy analyzed that the U.S. tariff measures could reduce South Korea’s total export volume by $5.3 billion to $24.1 billion (approximately 7.78 trillion won to 35.39 trillion won). Corporations that had moved production bases to Canada and Mexico to take advantage of low labor costs and duty-free benefits when exporting to the U.S. are now facing the direct hit of tariffs.
Experts believe there is a possibility of a strong confrontation between the U.S. and China. The International Financial Center stated in a report that, considering the failures of Trump’s first term and the capacity for imposing tariffs, there is a possibility that the U.S. could implement additional tariffs on specific products to consolidate its negotiating advantage, and “if protectionism spreads rapidly, global growth could slow to around 1% this year and next.”
Source: CHOSUNBIZ