US-China Trade War: 145% Tariffs Cause 35% Drop in Shipping Volumes, Mass Layoffs Feared

The US has imposed 145% tariffs on China, effectively creating a trade embargo between the two largest economies in the world. This has led to a significant freeze in shipping volumes from China, with many drawing comparisons to the supply chain shock experienced during the Covid pandemic.

To gain a deeper understanding of the current situation and its potential impacts, an interview was conducted with Craig Fuller, CEO and founder of FreightWaves. Fuller emphasized that while there may not be shortages of essential goods like food, the impact will be more pronounced on hard goods. He noted that the US produces 88% of the food it consumes, making food shortages unlikely.

Due to the tariffs, shipping containers heading to the US from China have decreased by 35% year over year, and this trend is accelerating. The second-order impacts of this reduction in shipping volumes are expected to affect the US economy significantly. Fuller highlighted that the first signs of this impact will be seen in the form of trucker and distribution center layoffs.

In Southern California, where half a million people work in logistics, the reduction in shipping volumes will lead to a sharp drop in work availability. This will result in mass layoffs as the demand for logistics services decreases.

One of the key questions is how long the economy can withstand this disruption before it becomes irreversible. Fuller suggested that if tariffs normalize by the summer, the economy could recover relatively quickly. However, if the situation persists into July and August, the negative impacts of the trade war will become more entrenched.

Fuller explained that if a trade deal is reached within a couple of weeks, the orders that would have been placed for back-to-school supplies could still be fulfilled, and inventory stockouts would not be a major concern. However, if the situation drags on, US companies will stop placing orders with Chinese contract manufacturers, leading to a significant disruption in the supply chain.

Fuller also noted that the lead time to restore the economy to its previous state would be about a month if a deal is reached. This means that if trade can normalize by July or August, the economy would be able to recover from the disruption.