Following President Trump’s tariffs, shipping-container traffic between China and the U.S. fell sharply, reigniting fears of pandemic-era shortages at American supermarkets.
Based on a 15-day rolling timeframe, estimates of container ships leaving China for the United States suggest a sharp decline in recent weeks.
In a note released Friday, Torsten Slok, chief economist at Apollo Global Management, cautioned that if layoffs begin to affect some of the 19 million workers in the retail industry and the 9 million employed in trucking-related jobs in the United States, there could be “empty shelves in U.S. stores in a few weeks,” along with serious negative economic risks.
Businesses and households have been concerned about possible shortages and increased expenses. However, there is another way to interpret the decline in maritime traffic: as Trump raised tariffs, American companies that depend on Chinese production for their products have been delaying orders and cargo transfers.
Because U.S. corporations knew for months that greater tariffs were going to be imposed starting in 2025, the current shipping backdrop appears different from previous shortages during the pandemic. In contrast to the COVID catastrophe, that also allowed them time to implement certain preventative measures.
“Everybody front-loaded their imports,” said Steve Blitz, GlobalData TS Lombard’s senior U.S. economist. Before tariffs were imposed, there was an unsustainable spike in imports in the first quarter. You are now witnessing its backwash.
Blitz stated that pricing will determine the economic impact of tariffs rather than a supply shock. He stated on Friday that “the stuff is going to come in,” but as higher tariffs begin to trickle down to new orders and commodities, the question will be what retailers can do to preserve their margins and keep unit sales.
Air freight is quicker.
Even after taking into consideration his 90-day halt on higher tariffs announced on April 2, Trump’s tariffs on goods entering the United States are already at their highest level in a century. Since China was left out of the ceasefire, the countries’ tit-for-tat tariffs have increased.
The business community and investors are alarmed by the long-term potential reach of global tariffs. Neither faction has done nothing.
Since “much of the increased shipments to the US are coming via air freight rather than ocean freight,” Grace Zwemmer, an associate economist at Oxford Economics, noted that any examination of supply chains should also account for the dramatically increased air-freight traffic.
“Because it provides a quicker shipping method than traditional ocean carriers, front-loading has increased demand for air freight,” Zwemmer said in a client note on Monday. “In the context of tariffs, making sure a shipment gets sent before tariffs are enacted could be a difference of thousands of dollars for a business.”
Although higher demand has been temporarily countered by reduced fuel costs (CL00), Zwemmer warned that supply-chain problems could eventually lead to more persistent inflation, “something the Federal Reserve is worried about.”
Even though the S&P 500 stock index (SPX) may have fulfilled the standard criteria of leaving its correction on Thursday, there were still a lot of losses to be made.
Bonds and stocks are important.
Moving away from supply chains, the U.S. economy is heavily reliant on consumers, and the stock market and credit conditions are also significant factors.
By stating that he has no plans to fire Fed Chair Jerome Powell, Trump gave Wall Street some peace this week, which investors claimed helped fuel the stock market’s surge.
Wall Street also focused on a meeting of big-box retailers at the White House this week to discuss tariffs, which the retailers called “productive.” A minor reprieve in borrowing rates for businesses and individuals attempting to finance a home or car was indicated by the decline in longer Treasury yields, BX:TMUBMUSD10Y.
Consumers’ and company owners’ perceptions of the economy have deteriorated due to the global trade conflict, and the 90-day respite has only slightly improved sentiment.
Deciphering first-quarter results, which would benefit from front-loading ahead of tariffs but also present a murky picture of what lies ahead, has been Wall Street’s more urgent challenge.
For starters, investors are still dubious about White House claims of trade deal progress when China has stated that none is taking place. Because of this, it is difficult to predict where tariff levels will wind up, if consumers would reduce their spending, or how the outlook for corporate profit margins will turn out.
Businesses typically dig down and cut back any major plans to expand in existing business lines or spend on new ones when the macroeconomic outlook is clear, according to John Canally, chief portfolio strategist at TIAA Wealth Management. Additionally, he anticipates that lower margins from increased material costs and lost foreign sales will put additional pressure on company profitability.
Layoffs may be used by businesses to make up for decreased profit margins, which could be detrimental to the economy. However, more stock market volatility may also lead to a reduction in spending by wealthy consumers who support the economy.
“Units sold is a retail store’s first rule,” said Blitz of GlobalData. “You have supplies, and you must get them through the store. “Your store closes if you don’t sell it,” he stated. “The issue isn’t supply, but price.”
