Global logistics companies told CNBC they have begun planning for a potential Trump win in November and what strategies will be needed to mitigate any additional tariffs, with Mexico seen as a key import gateway for any escalation in the trade war against China that began under Trump and continues. During the Biden presidency.
The planning began after the former president said in February that he was considering a plan to impose tariffs of 60% or more on Chinese goods as well as a blanket 10% tariff on all US imports during his potential second term.
In an appearance on CNBC on Monday morning, Trump ramped up his rhetoric on the trade war, saying, “I'm a big believer in tariffs,” and indicating that he would likely impose more tariffs on foreign goods if he wins the second presidential election. condition.
The Trump administration used delegated powers under three trade laws to unilaterally impose tariffs without congressional approval. The current range of tariffs imposed on a wide range of US imports today is between 10% and 25%.
Supply chain diversification away from China will increase if more tariffs are imposed, Nicky Frank, CEO of DHL Asia, said in an interview last week at the TPM conference in Long Beach, California.
“I think this will accelerate the current movement to reduce risk and diversify away from China to other countries,” Frank said. He added, “The 60% tariff will make moving to other places more attractive.” The tariffs imposed by the Trump administration led to a shift in supply chain strategy, which, according to Frank, became more sophisticated by customers during Covid, when they considered moving factories and production out of China.
Any increase in tariffs during Trump's second presidency is expected to lead to a greater shift in trade from China to Mexico to avoid tariffs. This is already happening, with 15% of China's US-bound trade crossing the Mexican border as a result of Chinese companies setting up shop in Mexico or using Mexican ports. The additional Chinese shipping containers that avoid tariffs add to the bottom line for both trucks and rail companies, leading to a rail boom. Union Pacific It is the only first-class railway serving all six major gateways to Mexico. It also connects to the two largest railways operating in Mexico: Ferromex and Ferromex Kansas City Canadian Pacific.
“The potential for us is great,” Beth Whited, president of Union Pacific, said in a recent interview about its business in Mexico with CNBC on the sidelines of the TPM conference. “You're seeing people really rethinking their supply chain and saying, they'd rather have some of these things a little closer to home and invest in Mexico for growth. We're very well positioned to do that. Mexico is a big part of our business, and we're excited about the opportunity.” Benefit from nearby transportation while continuing to invest in Mexico.”
Paul Brashear, vice president of transportation and intermodal at ITS Logistics, said the company is seeing a major shift toward Mexico as U.S. companies see Mexican ports as a gateway to the future.
“There are some really good ongoing discussions with some of our very forward-thinking customers who are using the ocean to get around Trump's tariffs, so I think the future will be exporting from the east and west to Mexico,” Brashear said in an interview. In TPM. “If you look at the Trump presidency, both China and Mexico can't be your enemies. So I'll be interested to see what side people in that administration will be on. I feel like Mexico will be moving toward that.” “To be the future. I just think the relationship between the United States and China is going to be difficult to repair.”
Chinese-made cars and Mexican trade
One sector where analysts see an increase in Mexican exports is the automobile industry. A major Chinese automaker is already considering setting up headquarters in Mexico, Chris Rogers, head of supply chain research at S&P Global, said in TPM.
“One of the challenges with tariffs is that we like to say that logistics finds a way, trade finds a way. And, you know, tariffs are just another barrier. Whether it's like the Red Sea, the excess demand in the pandemic era…” Customs duties fall into the same group. “So you end up with a situation where the tariffs are applied in one place, and trade moves.”
Trump specifically said during his interview with CNBC on Monday that he would target the Chinese auto industry.
“If you put tariffs on China, they will build their car factories here and they will hire our people,” Trump said. “We don't want to get cars from China. We want to get cars made by China in the United States using our workers.”
Biden administration officials also warned of the risks of China flooding the US auto market.
At the global level, other countries that could see further expansion in manufacturing are Vietnam and Malaysia, Rogers said. “We've seen mention of a 10% tariff on everything everywhere, so that will likely lead to significant inflation,” he added. “I think that would prompt countries to come to the United States and negotiate some kind of preferential trade arrangement that might obviously help free-trade area partners like South Korea and Mexico. But again, that might be another reason that might push Mexico to do this.” . better.”
Rogers warned of the difficulty of planning for potential trade war scenarios. “It is worth noting that there was a tariff issue against Vietnam during the Trump administration as well which may rear its head again,” he said. “We know there is an asymmetric risk regarding tariffs.”
John Gould, vice president of supply chain and customs policy at the National Retail Federation, told CNBC that Mexico has long been a factor in strategies among its members to diversify their supply chains that preceded the trade war. “Tariffs have accelerated that decision a little bit, and COVID has accelerated it even further,” Gould said.
He said the implementation and sustainability of the tariffs depended on the product category. “Because there are some groups that don't have China's capacity or capabilities,” Gould said. “And that's something we continue to tell lawmakers and regulators.” “As much as they want people to get out of China, companies are trying to do their best.”
If the packaging supplier has learned anything from the tariffs, it's to diversify its supply chain and show customers they have at least two sourcing options, said John Taylor IV, director of logistics at Berlin Packaging.
“I don't want to say we were only importing from China, but that pushed us to build a supply chain in other markets like Europe, so if the 60% tariffs that came into effect have options, it's not just China, we can,” Taylor said. : “It turns to Thailand and Europe.”
Critics of tariffs warn of widespread economic impacts. Trump's Section 301 tariffs under the 1974 trade law still apply to Chinese goods, and the Biden administration's review that was supposed to be completed at the end of 2023 has been extended until May 31.
“We are still waiting for the Biden administration to present the results of its four-year review, which is now in its fifth year and beyond,” Gold said. “Unfortunately, trade has a negative connotation at the moment, but people need to understand how important trade is to us,” he said. “If we don’t import, we won’t be able to export.” “These imports help support millions and millions and millions of jobs. So that's something we need to look at. We can't restrict everything because we're losing opportunities abroad and we're losing jobs here.”
“I think it would be an economic disaster if we imposed 60% tariffs on any country, let alone our huge trading partner China,” warned Peter Boockvar, chief investment officer at Bleakley Financial Group. “The unfortunate thing is that only the president can impose these tariffs without oversight from Congress.”
Critics also warn of the inflationary effects on consumers, but during the Trump presidency and the implementation of the tariffs, inflation has not risen above the historical average.
Standard & Poor's Global research shows that China's share of product imports covered by the Trump administration's tariffs has declined.
“They started with an 18% market share in the U.S., and now they're down to about 11%, and that's with 30% tariffs,” Rogers said. “So imposing a 60% tariff could trigger another round of transition. Now, the winners there were partly Mexico, but it was ASEAN as well. This includes primarily Vietnam, Malaysia, Indonesia and others. So it should Mexico will benefit if there is a new round of tariffs, but it will not be the only country that will benefit.
