Trump's Tariffs and Product Shortages

Today is another day on which there are multiple possible topics about which I could write. The administration of cult leader, convicted felon, and failed President Donald Trump creates enough subject material on a daily basis — never mind an entire weekend — to provide plenty of potential topics. I had planned to discuss the administration's deportation of migrant and U.S. citizen children. I'll probably do that later, but today I want to focus on the almost guaranteed at this point shortage of imported products that we are likely to face. The potential empty shelves that we may encounter are a result of Trump's tariff policy and, particularly, his trade war with China.

While some bloggers may be experts on every topic, I'm not. In particular, I am not an expert on international shipping. So, what follows is the result of a weekend's worth of reading. Hopefully, however, what I have been reading was authored by folks who are experts. What I have learned is that we may have already crossed the point of no return and that empty shelves — at least for a short period — could well be inevitable. This is due to the nature of shipping to the United States from China. When Trump raised tariffs on China to 145%, many U.S. companies cancelled orders from the country. Chinese manufacturers, in turn, cancelled production and halted shipments. While Trump has signaled a potential backdown from the high tariffs, that has not yet occurred and getting production and shipping back to normal is not as simple as flipping a switch. According to Investor's Business Daily, "Cargo ships sailing from Hong Kong to Los Angeles take on average around two-to-three weeks, between 25 and 30 days to Houston and about 40 days to reach New York City". Many U.S. retailers stocked up on imports before the tariffs took effect, causing a surge of cargo being off-loaded at ports. However, those ports are now seeing cargo traffic from China dry up. A reduction in imports from China will first be noticeable on the U.S. West Coast. Because goods are shipped by rail and trucks from there to the middle of the country, there will be a drop in trucking and train transport, and then shortages in the Midwest. Finally, import shortages will hit the U.S. East Coast.

The Wall Street Journal reported last week that, "essentially all shipments out of China for major retailers and manufacturers has ceased" and that the Port of Los Angeles expects a 35% drop in import volumes in two weeks. Similarly, the Los Angeles Times says that slowdowns could start as early as this week. Cargo traffic this week at the Los Angeles port will be down 28.6% from last week, and next week’s cargo will be 33% lower than it was a year ago at that time. The Times reported that retailers have said that they have a "six-to-eight-week supply of inventory," but that will quickly begin to dry up. At some point, we will see the timeline for new products reaching the U.S. extend beyond the date that retailers run out of current inventory. The result will be empty shelves. According to NBC News, "Some of the products likeliest to go missing from store shelves in the near future will be lower-cost footwear, apparel, toys, and electronics, for which manufacturing is heavily concentrated in China". Perishable items that couldn't be stockpiled will run out even sooner. NBC also quotes Sean Stein, president of the U.S.-China Business Council, as saying, "Starting in a couple of weeks, we are just going to start running out of stuff, and if the administration waits to resolve the problem until we have shortages and hoarding, that is just too late."

While large U.S. retailers were able to stockpile imports, the same is not necessarily true for smaller companies. These retailers lack the financing necessary for large shipments. They have had to either cancel shipments or pay the tariffs, costs they will have to pass onto their customers. This will put them at a further disadvantage relative to the large retailers and may cause a number of them to go out of business. Because many of these shortages may continue during the crucial back-to-school buying season, the impact on retailers could be devastating. Even more so if retailers are not able to stock up for Winter holiday shopping. If trucking companies are forced to reduce staff as cargo needs decrease, that will contribute additional job losses. As a result, in addition to empty shelves, the U.S. will probably face significant economic disruption and increased unemployment. Even if tariffs are dropped and shipments from China are resumed, there will be continued disruption. At that time, imports from China are expected to surge and clog the ports that are now starting to empty. As the Wall Street Journal quotes a shipping consultant as saying, "All the ships are going to be choc-a-block full, and freight rates will skyrocket." Therefore, it is inevitable that Americans will either face price increases due to tariffs, price increases due to increased freight costs, or a lack of inventory of many items. There are many predictions that the disruption will be worse than we observed during the COVID pandemic.

Axios reported last week that the CEOs of Walmart, Target, and Home Depot met with Trump to warn him of potential shortages caused by his tariff policies. They told him that they are facing disrupted supply chains, higher prices, and product shortages. An administration official told Axios that Trump "was told that shelves will be empty". The CEOs reportedly told Trump that disruptions would be noticeable in two weeks. Following the meeting, Trump said that he expected the tariffs placed on China to fall and said that his administration was in negotiations with China. However, China denied that any negotiations are taking place and set a number of conditions that it expected the U.S. to meet before negotiations could begin.

One thing that is clear is that almost nobody believes Trump's tariffs are a good idea. An astonishing number of seemingly intelligent people appear to have voted for Trump on the assumption that his talk about tariffs was nothing but empty campaign rhetoric. Even many Trump officials don't seem to have believed that Trump would implement tariffs on the level that he has. The Wall Street Journal reports on Oval Office intrigue that took place after Trump's announcement of "reciprocal tariffs" caused a stock market crash. Trump's trade advisor, Peter Navarro, appears to be one of the only Trump administration officials that supports the high tariffs. But Trump himself seems especially dedicated to tariffs and, as such, Navarro normally has Trump's ear. However, following the stock market crash, Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick waited until Navarro was due to be tied up in a meeting with economic adviser Kevin Hassett. Bessent and Lutnick quickly got an appointment with Trump and, in Navarro's absence, convinced the President to announce a pause on the tariffs. This led to a stock market recovery. But Trump's pause was only for 90 days and, as such, retailers are not sure what to expect in the coming months.

Trump's tariff policies appear to be rushed, not well thought out, and to have lacked planning. Fundamentally, Trump's policy has a contradiction. On the one hand, tariffs are expected to raise billions of dollars by taxing imports, replacing, Trump has suggested, income taxes. On the other hand, Trump expects U.S.-based manufacturing to skyrocket as manufacturers try to avoid tariffs. Both of these things cannot simultaneously be true. Either manufacturers will pay import taxes or they will move manufacturing to the U.S., but they won't do both. They may actually do neither, but simply stop sending products to the United States. Regardless, before implementing tariffs, Trump should have planned for alternative sources of imports that might stop due to the tariffs. Most astounding is the fact that Trump made no accommodations for the fact that China controls essential rare earth elements. Now China has stopped the export of rare earths to the U.S., leaving a number of our industries in trouble. The lack of planning is shown by the fact that we appear to need China more than China needs us. Chinese manufacturers earn money from the U.S. market and losing that market is a financial problem. However, the Chinese government can resolve that issue by writing checks to the companies who are losing markets. U.S. retailers, however, rely on China for products. Trump cannot simply send semi-trucks full of goods to resolve their shortages. The pipeline to the U.S. is going empty and Trump has no plans for refilling it. While he expected the Chinese to come begging, the Chinese have no plans for any such thing and, to the contrary, appear fully prepared to wait until Trump is the one begging. The result is that within two weeks, Americans may well be facing product shortages. That is likely true even if Trump were to resolve the tariff issue today, something that he appears to be nowhere close to doing. Instead, Trump has sent us down a path from which he appears to have no idea how to get us back. The result will likely be empty shelves for U.S. consumers.