As former President Donald Trump’s last trade gambit, he recently announced a 15% tariff on a broad swath of European-made goods—most notably, cars. This step would radically change U.S.-European trade relations. This ruling is to be effective immediately. Businesses are starting to see the effects, changing their shipping routes and export predictions as they try to adjust to the fiscal fallout.
According to Andrew Abbott, CEO of Atlantic Container Line, the newly imposed tariffs may dictate the choices of many European shippers. Abbott stressed that most important to business planning in laying out how companies book is the level of tariffs. He noted that certain manufacturers have limited or suspended orders for high dollar products. This leaves critical sectors like construction and agriculture equipment stranded as they await finalization of the tariff rate.
“I have seen some ocean bookings of high-value products (construction equipment, agricultural equipment, aerospace, transformers, etc.) have put all bookings on hold.” – Andrew Abbott
Unfortunately the introduction of this 15% tariff will lead to drastic cost increases on American consumers. For example, an American company buying a $300,000 piece of foreign-made machinery might pay $90,000 more due to tariffs. This serious potential cost is creating a fog of uncertainty for buyers and sellers.
Logistics specialists had begun to sound the alarm that despite these updated tariff rates, products imported are still expensive. As such, businesses are reconsidering the state of their supply chains. They’re boosting the range of products offered in the U.S. market. Retail executives have been sounding the alarm on the impact of these tariffs. They worry that these amendments would dramatically limit the types of products found on retail shelves across the country.
Even forecasts of global trade show just how far-reaching the effects of the current tariff debacle are. Global exports to the U.S. are projected to fall off a cliff by 2027. After adjusting for inflation, they will fall by more than 46%, to about $2.68 trillion when measured against that three-year average. On the flip side, U.S. exports are poised to increase by 12%, hitting nearly $1.59 trillion during the same period.
Not only will the new tariff structure be re-shaping import patterns dramatically. With their current 15% tariff scenario, UK imports are on track to erupt to $22.5 billion. France and Spain will see explosive growth, too. Imports will reach $10.2 billion and $5.65 billion respectively. Chinese imports are projected to drop by nearly $485 billion. In like manner, imports from our northern and southern neighbors are predicted to plummet by $300 billion and $238 billion respectively.
Cesar Hidalgo, an economics professor, highlighted a crucial point regarding global trade dynamics: “While the U.S. is imposing tariffs on the world, the world is not imposing tariffs on each other. His analysis shows that countries are poised to shift their trade patterns within a matter of weeks. Or they might shift their dependency from U.S. imports as they get used to these changing economic frontier.
“The point here is that countries will have a natural tendency to rewire their trade relationships away from the U.S. in many of these scenarios.” – Cesar Hidalgo
As businesses continue to analyze the implications of these tariffs, they are increasingly cautious about future bookings and inventory decisions. Abbott added that a significant number of companies are still in a waiting game as they wait for final tariff determinations.
Hidalgo further speculated on where new trade flows might emerge by contrasting forecasts based on future tariff regimes. Assuming a best-case scenario with no new German tariffs by the beginning of 2025, Germany could enjoy an export boom to the U.S. They’re expected to increase from $133 billion in 2023 to $155 billion by 2027. It’s easy to forget that the current 15% tariff framework was a major concession. Now, exports are projected to increase by just $149 billion over this time.
Fortunately, the Observatory of Economic Complexity (OEC) has created a Tariff Simulator. It employs an augmented gravity model to measure changes and forecast how the recently announced comprehensive trade agreement between the U.S. and EU will be likely to reconfigure global trade. The simulator forecasts a $101 billion drop in Chinese imports from the U.S., further indicating a shift in trade dynamics.