Will Trump’s new tariff proposals lead to skyrocketing costs for consumers, just as they did in 2018? As the 2024 US Presidential debates heat up, this topic has resurfaced as a critical economic issue. With Donald Trump defending his tariff-heavy trade policies, many fear a repeat of the massive price increases we saw during his first term.
In a fiery exchange during the recent US Presidential debate, Donald Trump defended his proposal to reinstate and even expand tariffs on imported goods. He suggests tariffs of up to 20% across the board and up to 100% on Chinese imports. While this may sound like a strong move to protect American jobs and industries, the big question is: at what cost? If history is anything to go by, the answer is steep shipping rate hikes and higher consumer prices. So, should we brace ourselves for another wave of financial strain? Let’s dig into what this could mean for everyday consumers and businesses alike.
The 2018 Tariff Spike: A History Lesson
Back in 2018, Trump’s trade war with China caused widespread chaos in the global shipping industry. According to data from Xeneta, an ocean freight rate intelligence platform, shipping costs from China to the US West Coast surged by over 70%. The average rate for a 40-foot container (FEU) jumped from $1,503 in January 2018 to $2,604 by November of the same year(Xeneta).
The effects of those tariffs rippled through the economy. While the intent was to make Chinese goods more expensive and thereby bolster domestic production, it inadvertently led to a spike in ocean freight costs. The increased shipping rates were passed down the supply chain, eventually hitting consumers’ wallets through higher retail prices. Analysts argue that Trump’s new tariff proposals will likely trigger similar effects, leading to higher prices for consumer goods across various sectors(POLITICO)(Xeneta).
Trump’s New Tariff Proposal: Déjà Vu All Over Again?
Fast forward to 2024, and Trump is once again pushing for aggressive tariffs, claiming they will revitalise American manufacturing and protect US jobs. His proposal includes a blanket 20% tariff on all imports, with even more severe tariffs on Chinese goods, ranging from 60% to 100%(Forbes ME)(Xeneta). Trump argues that these tariffs won’t hurt the American consumer, but industry experts strongly disagree.
Peter Sand, Xeneta’s Chief Analyst, warns that increasing barriers to trade usually results in higher costs down the line. The same pattern observed in 2018—when tariffs were raised and freight costs surged—is likely to be repeated. Sand notes that as shipping costs increase, the financial burden is eventually passed onto the end consumer, whether it’s through higher retail prices or limited product choices(Xeneta).
The ongoing conflict in the Red Sea has already placed significant pressure on global supply chains, and the introduction of new tariffs would only exacerbate these issues. In fact, spot rates for shipping from the Far East to the US have already seen increases of up to 389% between December 2023 and July 2024(Xeneta). Add tariffs into the mix, and you’re looking at even more market instability.
The Domino Effect on Consumers
Consumers are the ones who ultimately bear the brunt of higher shipping rates. Even if Trump’s tariffs do manage to boost American manufacturing, the immediate consequence is that goods imported from abroad will become more expensive. Retailers will be forced to pass these additional costs onto consumers, making everyday items more costly.
Take a product like electronics, for example. Many electronic devices are either manufactured or assembled in China. If tariffs are imposed on Chinese imports, the cost of shipping those products to the US will increase, meaning the final price tag for consumers will also rise. Moreover, companies may start to limit their imports or seek alternative suppliers, which could result in fewer choices on store shelves(Forbes ME).
Geopolitical Instability: Adding Fuel to the Fire
On top of the tariff debate, the global supply chain is already under immense pressure due to ongoing geopolitical tensions. The conflict in the Red Sea has severely impacted shipping routes, with freight rates from the Far East to the US East Coast increasing by over 300% between late 2023 and mid-2024(Xeneta). As companies scramble to get goods into the country ahead of any new tariffs, this front-loading behaviour could drive shipping rates even higher.
The combination of tariffs and geopolitical uncertainty creates a toxic mix for the global supply chain, which is already fragile from years of pandemic-related disruptions and trade wars. Experts agree that the increased frequency of these disruptions is making it harder for companies to manage risk in their supply chains, and the introduction of new tariffs would only add to that instability(Xeneta).
Case Study: The Impact of 2018 Tariffs on Small Businesses
To understand the potential fallout of Trump’s tariff proposal, let’s look at the impact of his 2018 tariffs on small businesses. Take, for example, a small furniture retailer that sources products from China. In 2018, when Trump introduced tariffs, the retailer faced a sudden increase in shipping costs. A container that previously cost them $1,500 to ship now cost over $2,600(Xeneta).
This price hike forced the business to make some tough choices. They had to either absorb the higher costs, which cut into their already-thin profit margins, or pass the costs onto their customers. They opted for the latter, raising their prices by 15%, which led to a dip in sales as customers sought cheaper alternatives.
But the story doesn’t end there. With the increased cost of doing business, the retailer also had to scale back on the variety of products they imported, offering fewer options to their customers. This combination of higher prices and reduced variety hurt their competitiveness in the market, leading to a challenging financial period for the business.
Conclusion: What Lies Ahead?
Trump’s tariff proposals are more than just a political talking point—they have real-world implications for consumers and businesses. If these tariffs are implemented, we’re likely to see a repeat of the 2018 shipping rate spike, with the associated increase in consumer prices following closely behind. For everyday shoppers, this means paying more for the same products, while businesses will struggle with higher costs and supply chain disruptions.
“Raising barriers to trade is almost always a negative move… the cost gets passed down the line, and ultimately it is the end-consumer who pays the price.” – Peter Sand, Xeneta Chief Analyst(Xeneta)
Stay informed about how trade policies impact your wallet and your business. Follow our updates to ensure you’re prepared for any market shifts in the future.
