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U.S. President Donald Trump may have announced a delay in some of his tariff plans, but the first signs of an economically-damaging slowdown in global trade are already emerging as companies around the world hit their own pause button on orders, and he continues to escalate his trade war with China.
Trump announced April 9 that he would increase import duties on Chinese goods to 125% while also announcing a 90-day pause in plans to impose higher tariffs on dozens of other economies, hitting them with a flat 10% tariff instead. China earlier in the day had raised its own new tariffs on imports from the U.S. to 84%. The escalation has taken the world’s two largest economies closer to a decoupling as their respective exports to each other now face what many economists consider prohibitive duties.
But even as Trump’s move was cheered in financial markets, there were already signs of how his tariffs are roiling the global economy, and warnings that a virtual halt in U.S.-China trade is starting to have damaging consequences. If anything, Trump is extending the uncertainty that has already begun to drag on business and consumer sentiment.
“Whipsaw movements in country tariff rates will do nothing to reduce already record levels of trade-policy uncertainty,” Bloomberg Economics economists Rana Sajedi, Maeva Cousin and Tom Orlik wrote after the pause was announced. “Trump appears to consider uncertainty a positive for negotiations. For businesses and markets, it’s a drag.”
They noted that even after the temporary reprieve, the average U.S. tariff rate is still rising to 24%, up almost 22 percentage points since Trump started his second term. That means the hit to economic growth and inflation remains similar in “a shock that will play out over two to three years.”
Online retail giant Amazon began canceling orders from China and other parts of Asia, Bloomberg News reported. Haas Automation, which bills itself as the largest machine tool builder in the western world, said it was reducing production and eliminating overtime for the 1,700 workers at its manufacturing plant north of Los Angeles because of a “dramatic decrease in demand for our machine tools from both domestic and foreign customers.”
Both moves reflected a broader pause in orders now hitting global supply chains as Trump’s tariffs take hold.
Vizion Inc., a tech company that gathers supply chain data, estimates global container bookings made between April 1 and 8 dropped 49% and U.S. imports fell 64% from the seven-day period immediately before. Bookings from China fell 36% in the same period while global container bookings for all countries fell 48% week over week.
“The ‘wait and see’ approach is one that is now playing out across millions of shipments scheduled each month,” said Kyle Henderson, chief executive officer of Vizion.
Jake Colvin, president of the Washington-based National Foreign Trade Council, said while Trump’s pause was welcome, the 10% baseline and massive tariffs on China would continue to pile pressure on trade. “While this temporary pause may lessen the immediate pain, it doesn’t diminish the uncertainty that is paralyzing companies’ trade, sourcing, and investment calculations,” Colvin said.
David Warrick, who until 2022 oversaw the operation of Microsoft’s global supply chains, said the best approach for many companies now was to “hurry up and wait.”
“Making a strategic decision today just does not seem like a really good thing to do because this is moving very quickly,” said Warrick, who is now at Overhaul, a supply chain risk management company.
Shipments between the U.S. and China are likely to drop off significantly in the weeks to come after a surge in demand in air freight in recent weeks to rush products to the U.S. ahead of tariffs. Eventually, the higher costs are likely to hit U.S. demand for Chinese products and vice versa, leading to a slowdown in shipping on the usually busy U.S.-China Pacific route, Warrick said.
‘Negative Shock’
Robert Koopman, a former World Trade Organization chief economist now at American University, said global trade was likely to slow significantly in the months to come as the tariffs took hold.
The first few months of the year “have been pretty good” for global trade amid a surge in exports to front-run Trump’s tariffs. “But I think for the next four or five months, it’s very likely to be much slower,” Koopman said. “The biggest negative shock” is set to be trade between the U.S. and China with tariffs in both directions prohibitive for anything but products that aren’t available anywhere else.
The best hope for global trade and the world economy, Koopman said, is that stimulus plans in China and Germany and a big industrial push in the European Union all could mitigate some of the impact of U.S. tariffs and keep trade flowing between the rest of the world as the U.S. puts up an economic wall. A total collapse in trade between the U.S. and China would hurt both those economies, but their almost $700 billion in bilateral goods trade last year represented less than 3% of global commerce, Koopman said.
The WTO, which is poised to release new forecasts in the coming days, has warned that spiraling tariffs will trigger an overall contraction of around 1% in global merchandise trade volumes this year – a cut of four percentage points from the WTO’s previous projections.
In a note titled ‘90-day tariff pause not as helpful as it sounds’ Citigroup Inc. economists cautioned that the average U.S. effective tariff rate is about 21 percentage points higher than its level at the beginning of the year.
“It was already likely that most of trade between the U.S. and China was uneconomical with the 60% increase in tariffs threatened on the campaign trail, much less a hike of more than twice that level,” said Citigroup senior global economist Robert Sockin.
For many smaller U.S. importers, the tariffs have become a life-or-death matter.
Ben Knepler, who runs Pennsylvania-based True Places, a designer of outdoor chairs that retail for up to $150, asked his Cambodian suppliers to pause shipments while he waited to see what happened to tariffs. “There is no point completing the product if we are not able to bring our product to the U.S.,” he said. “There are still massive amounts of uncertainty.”
While Knepler is hopeful of resuming production, that decision is dogged by uncertainty. The latest question looming over him: Whether Trump will decide in 90 days to impose the 49% tariff on goods from Cambodia he announced April 2, or continue with the 10% “baseline” tariff they are subject to during Trump’s pause.
“This new round of tariffs is existential for us,” Knepler said in an interview.
Companies trying to adapt to Trump’s tariffs have started using all sorts of tools to find a way around the duties, including artificial intelligence.
Fred Laluyaux, CEO and co-founder of Aera Technology, which works for clients including Unilever, Dell Technologies and Kraft Heinz, says one of the main ways companies are adapting to the higher tariffs is using AI to cut procurement costs. But there’s a limit to how much companies can reduce costs, especially if they haven’t prepared for a crisis many have long seen coming.
“If you’ve been to any supply chain conference for the last 15 years, they’ve been telling you to diversify, to not single source,” Laluyaux said. “AI can help you reroute things. But if at the end of the day you’re being charged 100% tariffs, it’s not going to help.”
The best hope for companies that depend heavily on the U.S.-China relationship may be that the two reach a deal. Speaking in the Oval Office April 9, Trump said he expects to eventually reach agreement with China. “I think we’ll end up making a very good deal for both,” Trump told reporters. “President Xi is one of the very smart people of the world.”
But for now, there isn’t an immediate off ramp for the U.S. and China trade war, according to Wendong Zhang, an economist at Cornell University.
“Even though China understands it will pay a much higher economic cost in percentage terms, the international political economy calculations mean that they are likely to stick to their guns,” Zhang said.
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