Trump moves on tariffs…and it will impact air cargo

China has imposed additional tariffs on U.S. imports in response to an additional 10 percent tariff imposed by the U.S. administration on Chinese goods.

China's Finance Ministry announced it would impose levies of 15 percent for U.S. coal and LNG and 10 percent for crude oil, farm equipment and some autos, Reuters reported. The new tariffs on U.S. exports will start on February 10, the ministry said.

"China also said it was starting an anti-monopoly investigation in Google, while including both PVH Corp, the holding company for brands including Calvin Klein, and U.S. biotechnology company Illumina on its unreliable entities list."

Separately, China's Commerce Ministry and its customs administration said it is imposing export controls on tungsten, tellurium, ruthenium, molybdenum and ruthenium-related items to safeguard national security interests, the report added.

U.S. President Donald Trump offered reprieves to Mexico and Canada as both the nations moved to control illegal activities on their respective borders. Trump had announced 25 percent additional tariffs on imports from Canada and Mexico to counter the increasing imports of fentanyl into the U.S.

In 2023, the U.S. trade deficit in goods was the world’s largest at over $1 trillion, the order added. "Tariffs are a powerful, proven source of leverage for protecting the national interest. President Trump is using the tools at hand and taking decisive action that puts Americans’ safety and our national security first."

Trump posted on Truth Social: “Canada has agreed to ensure we have a secure Northern Border, and to finally end the deadly scourge of drugs like fentanyl that have been pouring into our country, killing hundreds of thousands of Americans, while destroying their families and communities all across our country."

"Canada will implement their $1.3 billion border plan, and as per Prime Minister Trudeau, will be reinforcing the border with new choppers, technology and personnel, enhanced coordination with our American partners, and increased resources to stop the flow of fentanyl. Nearly 10,000 frontline personnel are, and will be, working on protecting the border.

"As President, it is my responsibility to ensure the safety of ALL Americans, and I am doing just that. I am very pleased with this initial outcome, and the tariffs announced on Saturday will be paused for a 30 day period to see whether or not a final economic deal with Canada can be structured."

Mexican President Claudia Sheinbaum has agreed to reinforce its border with 10,000 members of the National Guard to prevent drug trafficking to the U.S, particularly fentanyl.

Sheinbau posted on X: "We had a good conversation with President Trump with great respect for our relationship and sovereignty; we reached a series of agreements:

1. Mexico will immediately reinforce the northern border with 10,000 members of the National Guard to prevent drug trafficking from Mexico to the United States, particularly fentanyl.

2. The United States is committed to working to prevent the trafficking of high-powered weapons to Mexico.

3. Our teams will begin working today on two fronts: security and trade.

4. They are pausing tariffs for one month from now."

With the China move, the trade war seems to be well open with cross-border ramifications.

"Over the next two years (2025-26), we expect President Trump to implement the largest increase in U.S. tariffs since the infamous Smoot-Hawley tariffs in 1930. While Trump views tariffs as a tool for economic and negotiating leverage, we do believe that the U.S. and global economy will emerge from Trade War 2.0 with a substantively higher overall level of tariffs," says MUFG Bank in its February update.

Longer term, the most enduring legacy of President Trump’s two-term policy agenda may prove to be a more complete U.S.-China decoupling across trade, investment, technology and capital markets.

In early November 2024, Chinese President Xi Jinping signalled to former U.S. President Joe Biden that China is willing to improve relations with the U.S. but is ready for escalation if necessary. Xi reiterated China’s “four red lines” as it relates to US-China policy.

1.Any attempts to undermine the CCP’s grip on power

2.Any efforts to push China toward democracy

3. Any policies to contain China’s economic rise (i.e., tariffs, restrictions); and

4. Any explicit support or encouragement of Taiwan’s independence

“The four red lines must not be challenged. These are the most important guardrails and safety nets for China-US relations," Jinping said.

In addition to tariffs, Trump is likely to concurrently expand the already formidable non-tariff toolkit, especially with China, to impose restrictions and competitive barriers on economic activity, MUFG added.

The U.S. Customs and Border Protection (CBP) suspended the de minimis - imports less than $800 - exemption for Chinese-origin goods effective 12:01 a.m. ET on February 4, 2025. "Requests for de minimis entry and clearance for ineligible shipments will be rejected. The filer/importer has the option of filing an appropriate formal or other informal entry and paying all applicable duties, taxes and fees."

Direct hit on air cargo
The biggest short term impact on global freight could be in the air cargo market, where closing the de minimis exemption to Chinese e-commerce imports, which have kept planes full and China–U.S. air cargo rates at more than double typical levels since mid-2023, could affect air cargo demand and rates across the market, according to the latest update from Freightos.

"Closing de minimis to Chinese imports means that goods arriving by air will be subject to the new and already existing tariffs, incur significant filing requirements and costs, and will take a week or more to clear customs, significantly challenging the speed and savings that have driven the e-commerce air cargo surge.

"This change could sharply reduce air cargo volumes from China to the U.S., which would result in significant downward pressure on transpacific air cargo rates and could also lead to lower rates across the air cargo market as capacity currently absorbed by transpacific e-commerce goods is released back into rotation."

Over the last 10 years, the number of shipments entering the United States claiming the de minimis administrative exemption increased by more than 600 percent from approximately 139 million a year in fiscal year 2015 to over one billion a year by FY2023, according to data released by CBP.

"During Fiscal Year 2024, de minimis shipments rose once again to over 1.36 billion. This exponential increase has created challenges for CBP’s effective enforcement of U.S. trade laws, health and safety requirements, intellectual property rights, and consumer protection rules."

Aevean, a strategy consulting firm for the aviation and logistics industry, says China e-commerce reached a "staggering 1.2 million tonnes or 55 percent of all China-U.S. air trade in 2024."

Reactions flow in
In ending the de minimis loophole, Trump has dealt a crushing blow to the likes of Temu, Shein and TikTok Shop, according to a report on Bloomberg Opinion. "Those croissant lamps, dolphin bathmats and toddler clothes are about to get a lot more pricey, so if you haven’t kept to your New Year’s resolution of steering clear of fast fashion, now’s a wise time to start."

U.S. warehouse space will become a premium – don’t wait until space is gone or disruptions escalate even further to secure what is necessary for your business needs, writes Brian Bourke, Global Chief Commercial Officer, SEKO Logistics on LinkedIn.

"U.S. importers should ensure that they are enrolled in Customs and Border Protection’s periodic monthly statement programme to allow for the most beneficial payment terms for newly implemented tariffs."

Trade and maritime expert Lars Jensen, in his LinkedIn post says: "For shippers, this is clearly a problematic landscape within which to plan the supply chain. Given the magnitude of the postponed tariffs, it is likely that shippers will try to frontload as much cargo as possible within the 30-day timeframe where this is practical and feasible between the U.S., Mexico and Canada.

"But it is not the only trade war afoot. Ecuador announced 27 percent tariffs on Mexican goods. It would appear this will be a larger problem for Ecuador than for Mexico. The trade amounts to just 0.1% of Mexican exports. Conversely, the largest import Ecuador gets from Mexico is medication."

Jason Miller, Supply Chain Professor, Michigan State University - Eli Broad College of Business, says "given China's retaliation against tariffs hitting energy, agri commodities and equipment, hopefully there is room for a deal to be struck. Uncertainty about tariffs will be a headwind for growth as firms will strategically delay some investment decisions whose ROI depends on how the tariff chips fall."

Nitin Kamath, Founder and CEO, Zerodha, India's zero broking stock trading platform, says China today is the largest trading partner for over 120 countries. "In terms of financial and military dominance, the U.S. remains the most powerful nation, for now. The question is, will the stance of "America first" backfire or not? In such a globalised and interconnected world, how can you increase tariffs, which will inflict collateral damage, and still hold on to power?"

(The story was published in the February issue of The STAT Trade Times)

Trump, in an executive order issued on Friday, temporarily halted the ban of de minimis imports from China so that the Secretary of Commerce can notify the President "that adequate systems are in place to fully and expediently process and collect tariff revenue applicable."