Graham Parker
October 1, 2024
Tariffs have been a focal point during the recent US presidential election with numerous articles and conversations about what they will mean for the US economy and global environment. In this article, we’ll share what tariffs are, a bit of history, and why having an AI-driven rate management system is more important than ever.
Tariffs have long played a significant role in global trade, acting as economic tools and political statements. A tariff is essentially a tax imposed by a government on goods and services imported from other countries. The main goal is to make these imported items more expensive, encouraging consumers to buy domestically produced goods and stimulating local economies. While this sounds straightforward, the reality of tariffs is complex, impacting international relations, global supply chains, and consumer prices.
The History of Tariffs
The history of tariffs dates back centuries and has evolved alongside the global economy. In early periods, tariffs were a crucial source of revenue for governments, especially before the advent of modern income taxes. In the United States, for instance, tariffs were a primary means of funding federal expenditures during the 18th and 19th centuries.
By the late 20th century, the trend began shifting toward lower tariffs and increased free trade, exemplified by agreements like the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). These frameworks were designed to facilitate smoother international trade and reduce barriers. The early 21st century, however, saw a renewed interest in protectionist policies, most notably under the 2016 Trump administration in the U.S., which imposed significant tariffs on Chinese goods and triggered retaliatory measures. These moves emphasized the strategic use of tariffs not just for economic reasons but for addressing perceived inequities and national security concerns.
What Does the Future Hold for Tariffs?
As 2025 approaches, the outlook for tariffs remains uncertain, but significant changes may be on the horizon. Recent years have underscored the vulnerabilities in global supply chains, revealed by the COVID-19 pandemic and geopolitical tensions such as the U.S.-China trade conflict and the war in Ukraine. These factors have prompted many countries to rethink their reliance on imports, particularly for critical goods like semiconductors, medical supplies, and energy. This introspection could mean that tariffs will be employed more selectively, targeting industries vital to national interests.
In addition, the green transition could bring a new dimension to tariffs in the coming years. As the world moves toward more sustainable practices, the idea of "carbon tariffs" or border carbon adjustments has gained traction. Such measures would impose fees on imported goods based on their carbon footprint, aligning economic policies with environmental commitments. This could be a game-changer, potentially leading to a new era of trade regulation that prioritizes sustainability.
Thoughts on the Impact of Tariffs on Shippers in 2025
The uncertainty surrounding tariffs has shippers and industry associations on edge as President-elect Donald Trump prepares to take office in January. While many of his tariffs, implemented during his first term in office, remained during Biden’s term, many shippers began reducing their exposure to China and shifting production to other countries. Southeast Asian countries, in particular, appeared to be the major recipient of much of this shift.
However, throughout this year’s campaign, Trump called for additional tariffs in addition to those currently in place including a universal 10-20% tariff on imports from all foreign countries and an additional 60-100% tariff on imports specifically from China.
Studies have shown tariffs have a domino effect across supply chains with shippers who pay the tariff and then pass that cost through suppliers, distributors, stores, and eventually to the end customer who ultimately pays a higher price. The National Retail Federation, for example, said that if new tariffs on imports to the U.S. are enacted, consumers could lose between $46 billion and $78 billion in spending power each year.
According to Peter Sand, chief analyst with Xeneta, the last time Trump increased tariffs on Chinese imports in 2018, ocean container shipping freight rates rose by more than 70% (Xeneta).
“The knee-jerk reaction from U.S. shippers will be to frontload imports before Trump can impose his new tariffs,” Sand said in a statement. “Back in 2018, the tariff on Chinese imports was 25%; now it is increasing up to 100%, so the incentive to frontload is even greater.”
Managing Rates Through Demanding Environments
The next four years will be challenging for shippers and BCOs. Higher tariffs can lead to trade wars, as seen in past retaliations that harm both domestic consumers, who face higher prices, and industries that rely on exports.
Whether or not tariffs as high as Trump proposed throughout his campaign come to fruition, shippers and BCOs will still need to manage freight rates with as much flexibility and agility as possible.
Benefits of Ship Angel
Ship Angel helps shippers and BCOs reduce tariff expenses by optimizing shipping costs. With Ship Angel, they can identify the most cost-effective routes and consolidate shipments, leading to lower per-unit shipping costs and easing some of the impact of increased tariffs.
Additionally, Ship Angel keeps shippers informed with real-time updates on tariff changes, which helps companies proactively adjust their supply chain strategies. This real-time insight enables them to make more informed decisions, such as choosing alternative routes or sourcing options to circumvent areas affected by tariffs.
Moreover, Ship Angel’s compliance and risk management tools are invaluable, as they ensure shippers remain compliant with evolving trade regulations, reducing the risk of unexpected penalties and additional fees during periods of tariff fluctuation. With flexible shipping options, including choices between air, ocean, and rail transportation, shippers can select modes that best suit their budget constraints and potentially avoid tariff-heavy routes. Altogether, Ship Angel’s suite of tools and insights supports shippers by helping them adapt to tariff changes, maintain compliance, and manage costs effectively, making it a vital resource in times of elevated tariffs.
About Ship Angel
Ship Angel is a cutting-edge rate management platform for BCO shippers, offering innovative solutions in rate management, amendment guard, invoice auditing, and sustainability reporting. Powered by AI, Ship Angel helps shippers manage rates efficiently, ensure contract accuracy, and optimize cost savings. With a commitment to transparency, Ship Angel works across industries to help companies avoid costly disruptions and stay ahead in a rapidly evolving global trade environment.
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