No tariff relief despite US-China ‘deal’ hype — a negative for shipping
“OUR deal with China is done,” proclaimed US president Donald Trump on Wednesday. Whatever that deal actually is, it isn’t lowering historically high US tariffs.
Those levies — effectively a tax on US businesses that curbs margins — continue to represent a headwind for container shipping demand.
How much in incremental import taxes are US businesses paying?
According to US Census Bureau data compiled by freight economist Jason Miller, a professor at the University of Michigan, US customs duties skyrocketed to $19.3bn in April, up $13.5bn year on year (y/y) or 231%.
For shipping, timing issues create temporary spot-rate increases, as on-again, off-again tariffs lead to booking surges, but rate upside appears transient.
“Transpacific freight rates are easing from their recent highs on a mix of moderation in spot booking activity and higher capacity availability,” said Omar Nokta, shipping analyst at Jefferies, in a client note on Wednesday.
“Spot rates overall remain at decent levels, but the peak seen in early June at around $6,000 per feu appears likely to slip to between $4,000-$5,000 per feu in the near term, based on the latest indicative quotes.”
According to Linerlytica, “Carriers’ initial exuberance has been curbed, with several transpacific extra loaders withdrawn as rates tumbled barely a week after the June 1 rate hike.”
Bookings data from Vizion shows a further decline in US cargo bookings from China, as well as US cargo bookings from all sources, in the latest week (June 2-8). Bookings are generally made two weeks before loadings and transpacific voyages take two to five weeks.
China-US bookings covered by Vizion data were down 33% in June 2-8 versus the post-tariff-reprieve peak in May 12-18, and were down 9% y/y.
US bookings from all import sources were down 18% in June 2-8 versus May 12-18, and down 1% y/y.
Underscoring the negative effects of tariffs, the National Retail Federation is now forecasting that US containerised imports in June-October will be down 14% y/y, and down 1% versus June-October 2023, a period when transpacific spot rates were less than third of current levels.
Commerce secretary claims China tariffs won’t fall
The Trump 2.0 tariffs on China remain at 30% — 10% for so-called reciprocal tariffs and 20% for fentanyl emergency tariffs. That’s on top of previously existing tariffs, which according to Trump, are at 25%.
“WE ARE GETTING A TOTAL OF 55% TARIFFS, CHINA IS GETTING 10%,” he wrote on social media on Wednesday.
US Commerce Secretary Howard Lutnick said in an interview on CNBC that these China tariff levels are the new normal. Asked whether they will not shift again, he replied, “You can definitely say that.”
Average US tariffs look more likely to go up than down in the near term. They rose this month and could increase again next month.
Trump hiked the steel and aluminium tariff to 50% on June 4, from 25% previously.
There was another costly change: Previously, US importers didn’t pay the reciprocal tariff if their goods had any steel and aluminium content; they paid the steel and aluminium tariff. As of June 4, they are paying the 50% steel and aluminum tariff on that content, plus the reciprocal tariff.
US levies could also increase when the 90-day reciprocal tariff pause for non-Chinese trading partners expires on July 9. It appears the pause will be extended for some trading partners, but in other cases, tariffs could revert to “Liberation Day” levels.
US Treasury Secretary Scott Bessent said during a congessional committee meeting on Wednesday that the US is currently negotiating with 18 “important trading partners”.
“It is highly likely that for those countries, or trading blocs in the case of the EU, that are negotiating in good faith, we will roll the date forward to continue good-faith negotiations. If someone is not negotiating, then we will not.”
Court battle hangs over US tariff strategy
Reciprocal tariff talks coincide with a legal fight that is complicating the negotiating dynamics. On May 29, the US Court of International Trade (CIT) ruled that Trump’s use of the International Emergency Economic Powers Act of 1977 (IEEPA) for tariffs was illegal.
That ruling would require the administration to halt all reciprocal and fentanyl tariffs and refund all of the money to US importers, then replace the IEEPA tariffs with levies allowed under other laws.
The CIT ruling was appealed to the US Court of Appeals for the Federal Circuit (CAFC). On Wednesday, Trump wrote on social media that CAFC “has just ruled that the United States can use TARIFFS to protect itself against other countries. A great and important win for the US.”
In fact, CAFC has not decided the merits of the appeal and Trump has not won yet.
CAFC ruled on Tuesday that it would stay the CIT ruling until it decided on the appeal. It will hold oral arguments on July 31, and given the gravity of the case, it will use an en banc procedure, in which all 12 CAFC judges will preside, not a usual panel of three judges.
Whichever side loses in the CAFC decision will almost certainly appeal to the Supreme Court, but by July 31, the high court will be on summer recess, not returning until October.
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