Updated on November 25, 2024:

President-elect Donald Trump is preparing to deliver on his tough rhetoric on tariffs. Less than two months before officially taking office on January 20, 2025, Trump announced on his Truth Social platform on Monday (November 25) that he plans to impose 25% tariffs on all products from Mexico and Canada, along with an additional 10% tariff on products from China.

“As everyone is aware, thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before,” he wrote on the social platform. “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem. We hereby demand that they use this power, and until such time that they do, it is time for them to pay a very big price!”

However, the proposed tariffs could potentially violate the terms of the U.S.-Mexico-Canada Agreement (USMCA), which Trump signed into law in 2020. This agreement, which replaced the North American Free Trade Agreement (NAFTA), ensures that trade among the three countries remains largely duty-free for certain goods.

Published on November 6, 2024:

On Wednesday, November 6, President Donald Trump was elected the 47th president of the United States and will return to the White House in January 2025, signaling a new era for U.S. trade policy. A second Trump presidency is widely expected to emphasize assertive, often unilateral trade measures, which could introduce sweeping changes to tariffs and trade negotiations, and add uncertainty and new complexities for companies dependent on global trade.

Read on for Flexport’s breakdown—what to expect under the new U.S. administration in 2025, what’s at stake for U.S. trade policies, and our advice for Flexport customers.

What to Expect: The Return of U.S. Tariffs as a Central Policy Tool

Trade is expected to take center stage under President Trump’s administration, with unilateral tariffs likely to become a primary lever in U.S. economic strategy. President Trump has consistently signaled his preference for tariffs, proposing measures that include a universal 10% or 20% tariff on all imports, and a substantial 60% tariff on goods from China. These measures could add onto existing tariffs on steel, aluminum, and other products that were already introduced earlier this year under the Biden administration; alternatively, the Trump administration could replace the existing proposals with completely different tariffs.

President Trump has also hinted at additional, situational tariffs, including a 200% tariff on imports from vehicle makers that relocate manufacturing outside the U.S., and a potential 100-200% tariff on Chinese automobiles made in Mexico. These heightened tariffs underscore President Trump’s focus on reshoring U.S. manufacturing jobs, reinforcing domestic supply chains, and maintaining a trade balance favorable to the United States.

Another tool used in the past—by the Reagan administration in the 1980s, for example—is an import quota system, which limits the quantity of a certain product that can be imported in a given time period, and is typically the result of a trade negotiation between countries. President Trump used import quotas in a limited fashion during his first term; he may leverage them again to incentivize domestic production in certain industries, and could give higher quota allocations to countries that give more to the U.S. in exchange.

While these measures may encounter legal challenges in Congress and the courts—and those legal challenges could happen long after the impact of the tariffs—they indicate a strong commitment from the Trump administration to use trade policy as a mechanism to reshape the global market. If implemented, these tariffs could dramatically increase costs—particularly for import-dependent sectors like electronics, automotive, and consumer goods.

“America First” Policy: Escalating Tensions with U.S. Trade Partners and Potential International Retaliation

The Trump administration is expected to take a strong stance against China, positioning tariffs as a means to balance trade deficits and counter perceived economic and strategic threats. President Trump has proposed tariffs as high as 60% on all Chinese imports, as well as elevated tariffs on goods manufactured by Chinese companies—even if those goods originate from other countries, such as Mexico.

Such measures represent a departure from traditional country-of-origin rules, suggesting a significant shift in U.S. customs policy. This approach reflects Trump’s view of the U.S.-China trade deficit as a key economic measure, and a second term is likely to see intensified trade actions aimed at addressing this imbalance. Moreover, Trump’s administration may leverage tariffs as a geopolitical tool, proposing tariffs of up to 200% in scenarios where China pursues military actions that are contrary to U.S. interests.

The proposed tariff increases are also expected to provoke responses from other U.S. trade partners, such as the European Union (EU). The EU has already signaled its intent to prepare retaliatory tariffs should the U.S. enact broad tariff measures, developing a list of U.S. exports to target in case of escalation. EU nations, along with other U.S. allies like Japan and South Korea, may coordinate a joint response to amplify economic pressure on the U.S. to reconsider these measures.

As for the impact in North America, the U.S.-Mexico-Canada Agreement (USMCA), a free trade agreement between the U.S., Mexico, and Canada that took effect on July 1, 2020, is due for review in 2026. The Trump administration may seek significant changes, particularly in addressing trade imbalances with Mexico and Canada. In particular, automotive products are expected to be a key focus, with concerns surrounding Chinese investment in Mexican manufacturing.

The Trump administration may also use the USMCA review to revisit the U.S. goods trade deficit with Canada and Mexico, both of which have substantially increased trade with the U.S. since 2020. Trump’s emphasis on reshoring jobs and reducing the U.S. trade deficit may drive a more aggressive approach to renegotiating terms, with potential changes that could reshape North American supply chains.

Lastly, Trump’s administration may also diverge from current U.S. commitments to multilateral trade organizations and initiatives. As in Trump’s first term, there is also potential for renewed U.S. pressure to reform or even withdraw from the World Trade Organization (WTO), though this would require congressional approval. While the U.S. has historically relied on partnerships and multilateral agreements, President Trump has emphasized a preference for bilateral deals and may continue to deprioritize or renegotiate multilateral initiatives, such as the Indo-Pacific Economic Framework (IPEF) and the Trade and Technology Council (TTC) with the EU.

Key Areas to Watch: Short-Term Demand Surges and Long-Term Trade Pattern Shifts

In the short term, we could see U.S. import demand surge, says Lars Jensen, CEO of Vespucci Maritime, with many shippers rushing to bring in non-time-sensitive goods before potential new tariffs are implemented. According to a recent poll at Flexport’s Freight Market Update webinar, nearly 10% of survey respondents said they were shipping more to get ahead of potential new tariffs. However, shippers need to account for a variety of factors in their decisions, such as the additional storage costs of accumulating too much inventory, especially given that new, additional tariffs wouldn’t be implemented until the end of 2025 Q1 at the earliest.

Additionally, the potential January 15th port strike on the U.S. East and Gulf Coasts now faces additional uncertainty—namely, whether President-Elect Trump would break the strike or intervene in ILA-USMX negotiations, even though he had previously expressed his support for union workers.

With an emphasis on domestic manufacturing and reduced reliance on imports, potential tariff proposals under President Trump’s second term will likely increase operational costs and complex regulatory compliance requirements. Over the long term, as a U.S. trade war looms yet again, we should expect more structural supply chain shifts: changes to sourcing patterns for U.S. imports, and further diversification of companies’ manufacturing bases in countries like Vietnam, India, and Mexico. And with potential retaliatory tariffs, it’s possible we’ll see a decline in U.S. exports—along with a greater mismatch between full and empty container flows.

Companies should conduct comprehensive scenario planning, assessing both upstream and downstream impacts to supply chains in preparation for potential tariff increases and regulatory shifts. This is especially important for companies reliant on imports from countries like China, and those operating in sectors sensitive to trade policy changes, such as technology, automotive, and consumer goods. Given the possibility of escalating trade tensions and retaliatory measures, companies with significant exports may need to prepare for market volatility and reduced demand in key regions.

Regardless of which administration is in charge, supply chain tracing and transparency will remain critical. Compliance with U.S. laws, such as the Uyghur Forced Labor Prevention Act (UFLPA), will continue to be enforced under Trump’s administration, and new compliance requirements for critical mineral and battery sourcing are expected to increase under the Inflation Reduction Act. Additionally, businesses in sectors like automotive and electronics should prepare for enhanced scrutiny around import compliance, particularly regarding components originating from regions under U.S. trade restrictions. Proactive customs compliance planning and investment in supply chain tracing technology will be essential for managing these ongoing demands.

We’ll continue to update this blog with news and updates. As new tariffs and non-tariff barriers will be front and center under President Trump’s administration, our expert team of trade advisors is here to help you understand potential risks and provide guidance—such as reevaluating drawback as a strategy—on how to mitigate some of the impacts of current and new tariffs.