President-elect Trump's Tariff Threats Impact on Transportation Industry

By Lisa Baertlein

LOS ANGELES (Reuters) – President-elect Donald Trump's threatened tariffs on key trade partners, including China, Mexico, and Canada, could significantly harm the $1.7 trillion U.S. transportation industry and exacerbate an ongoing trucking recession, experts warn.

The transportation sector, which is crucial for moving goods across the U.S., serves as an economic bellwether, and changes in trade policy may lead to unforeseen consequences. Trump asserts these tariffs will benefit U.S. businesses, but sector analysts are skeptical.

Jason Miller, interim chair of supply-chain management at Michigan State University, states, "Tariffs will raise prices, which reduces demand for freight."

Many transportation companies, including major players like J.B. Hunt Transport Services and United Parcel Service (UPS), would face revenue declines due to tariffs. While J.B. Hunt did not comment, UPS declined to provide further insights, and railroad operators indicated readiness to respond to potential tariffs.

Trump sees tariffs as a means to create jobs and raise revenue, intending to offset losses from tax cuts. However, experts caution that this approach may essentially impose new consumer taxes, affecting spending—America's primary economic engine.

Tariff threats are also viewed as leveraging tools to pressure U.S. trade partners on nontrade issues like immigration. Countries affected, such as China and Mexico, have resisted these measures, claiming they would adversely affect all parties involved.

Trump has signaled 25% tariffs on Mexican and Canadian goods unless those countries control issues like immigration. He also proposes an additional 10% tariff on Chinese imports.

As the world's top importer and second-largest exporter, Trump’s tariffs could diminish trade volumes in both directions, according to Mary Lovely from the Peterson Institute for International Economics. She warns the new administration may implement tariffs in the following quarters.

The Impact on Trucking and Rail

Trucking constitutes about one-third of the U.S. transportation sector, making it particularly vulnerable to tariff imposition. Previous Trump-era tariffs contributed to a trucking recession throughout much of 2019.

Dean Croke, principal analyst at DAT Freight and Analytics, foresees further disruptions ahead, stating, "We’ve seen this movie before, and it won’t end well." The trucking sector has been in a downturn for nearly three years, marking the longest decline since the global financial crisis.

Experts note that any new tariffs may clash with stagnant industrial production, which impacts domestic and international shipping volumes from sectors such as manufacturing and electricity.

Significant growth opportunities exist for the trucking sector, particularly in cargo movements between the U.S. and its northern and southern neighbors, with the value of this trade reaching $88.5 billion in September 2024, a 7.7% increase year over year.

Regarding trans-border rail freight, which is also a vital aspect of the industry, analysts fear that tariff threats could hinder development strategies aimed at growth.

Notably, Canadian Pacific’s merger with Kansas City Southern in 2021 created an important rail connection across North America. Union Pacific also has substantial connections to Mexico, which may strengthen its position should demand fluctuate due to tariffs.

In summary, while there are concerns about the ramifications of Trump's proposed tariffs on the trucking and rail sectors, the full impact remains to be seen as trade dynamics continue to evolve.