The US economy is preparing for a possible Trump victory and the imposition of new China tariffs.

• According to CNBC, logistics companies interviewed at a recent conference are already anticipating a shift in global trade in advance of a potential second term for Donald Trump and an increase in Chinese import tariffs.
• On Monday morning, CNBC reported that Trump stated he is prepared to intensify the trade war and focus on the Chinese auto industry, which allegedly plans to utilize Mexico as an automobile export hub.
• In 2023, 15% of Chinese goods will enter Mexico through its ports to avoid tariffs imposed by both Trump and Biden, resulting in an increase in Chinese trade bound for the U.S.

CNBC reports that global logistics companies have commenced planning for a potential Trump victory in November and the tactics required to mitigate any additional tariffs, with Mexico serving as a crucial entry point for any intensification of the trade conflict against China, which was initiated under Trump and persisted under the Biden administration.

The planning began after the ex-president announced in February that he was considering imposing tariffs of 60% or higher on Chinese goods and a 10% blanket tariff on all U.S. imports during his potential second term.

During a CNBC "Squawk Box" interview on Monday, Trump intensified his trade war stance by stating, "I am a strong proponent of tariffs," and hinted that he may impose additional tariffs on imported goods if he is reelected.

The Trump administration utilized delegated authorities under three trade laws to impose tariffs on a broad range of U.S. imports without Congressional approval. Currently, the tariffs on these imports range from 10% to 25%.

DHL Asia CEO Niki Frank stated in an interview at the TPM conference in Long Beach, California, that the diversification of the supply chain away from China will increase if more tariffs are imposed.

Frank stated that he believes a 60% tariff will make it more appealing for businesses to move away from China and into other countries. He added that the Trump administration's tariffs sparked a shift in supply chain strategy, which became more refined by customers during the Covid pandemic as they considered relocating factories and production.

During a second Trump presidency, any increase in tariffs on China is expected to result in a greater shift in trade from China to Mexico to avoid the tariffs. This is already happening, with 15% of China's trade bound for the United States crossing the Mexican border as a result of Chinese companies setting up shop in Mexico or using Mexican ports. The additional containers of Chinese freight avoiding the tariffs is benefiting both trucking and rail companies, with railroad being the only Class I railroad that serves all six major gateways to Mexico and connects with the two largest railroads operating in Mexico: Ferromex and Kansas City Southern.

"Beth Whited, Union Pacific president, stated in a recent interview with CNBC at the TPM conference that the potential for the company's Mexico business is significant. She explained that people are rethinking their supply chain and preferring to have some things closer to home, which presents an opportunity for growth in Mexico. Union Pacific is well-positioned to take advantage of nearshoring as the investment in Mexico continues, and Mexico plays a big part in its business."

ITS Logistics' vice president of drayage and intermodal, Paul Brashier, stated that there is a significant shift towards Mexico as U.S. companies view Mexican ports as a gateway for the future.

"Brashier stated in an interview at TPM that some of their forward-thinking clients are using the ocean to bypass Trump tariffs, and he believes that the future will involve exporting from East and West into Mexico. He added that if the Trump presidency continues, it will be challenging to maintain a hostile relationship with both China and Mexico. Brashier believes that Mexico will play a significant role in the future, and he thinks that the relationship between the US and China will be difficult to repair."

Chinese-made cars and Mexico trade

The auto industry is witnessing an increase in Mexican exports, according to analysts. Chris Rogers, head of supply chain research for S&P Global, stated at TPM that one of the major Chinese automakers is considering establishing operations in Mexico.

"Tariffs present a challenge because they act as a barrier, just like the Red Sea or the excess demand of the pandemic era. As a result, logistics and trade find ways to adapt, and trade moves."

During his Monday CNBC interview, Trump stated that he intended to focus on the Chinese automotive sector.

"Trump stated, "If we impose tariffs on China, they will establish their car factories in the US and hire our citizens." However, he clarified, "We do not desire to obtain vehicles from China. Instead, we aim to have China manufacture cars in the US utilizing our workforce.""

Officials from the Biden administration have cautioned about the dangers of China overwhelming the American automotive industry.

According to Rogers, countries that could experience more manufacturing growth globally are Vietnam and Malaysia. He stated that a 10% tariff on all goods from all countries could lead to inflation. Rogers believes that countries may come to the US to negotiate preferential trade arrangements, which could help free trade area partners like South Korea and Mexico. However, this could also be another reason why Mexico may perform better.

During the Trump administration, a tariff case was brought against Vietnam, which may resurface in the future. It's important to remember that there is an asymmetric risk associated with tariffs.

Jon Gold, vice president of supply chain & customs policy at the National Retail Federation, stated that Mexico has been a key factor in diversifying supply chains among members for years, with tariffs and Covid accelerating the decision.

The viability of implementing tariffs depends on the product category, according to Gold. He explained that some categories lack the capacity or capabilities of China, which is something they continue to convey to lawmakers and regulators. Despite the desire to move away from China, companies are striving to do their best.

John Taylor IV, director of logistics for Berlin Packaging, stated that the company learned from the tariffs to diversify its supply chain and advise clients to have at least two sourcing options.

Taylor stated that while they initially sourced solely from China, they had to expand their supply chain to other markets like Europe due to the escalation of the situation. If 60% tariffs are imposed, they have options and it's not just China. They can adapt to Thailand and Europe.

The ongoing application of Trump tariffs on Chinese goods, which were imposed under Section 301 of the Trade Act of 1974, has raised concerns among critics about the broader economic impacts. Despite a planned review by the Biden administration, the deadline for completion has been extended to May 31.

"The Biden administration has yet to release the findings of their four-year review, which is now entering its sixth year, according to Gold. Despite the negative connotation associated with trade at the moment, it is crucial to recognize its importance. Imports are necessary for us to export, which supports millions of jobs. We must find a balance between protecting our interests and maintaining trade relationships to preserve jobs both domestically and abroad."

"If we imposed 60% tariffs on any country, particularly our major trading partner China, it would lead to an economic catastrophe, according to Peter Boockvar, the chief investment officer of Bleakley Financial Group. Unfortunately, the president has the power to implement these tariffs without any oversight from Congress."

Despite warnings from critics about inflationary effects on consumers, inflation did not increase significantly during the Trump presidency and the implementation of tariffs.

According to S&P Global research, the percentage of imports of tariffed products that come from China has decreased.

"According to Rogers, the company started with a 18% market share in the U.S. and has since dropped to around 11%, with a 30% tariff. If a 60% tariff is implemented, it could lead to another round of transformation. The winners in this scenario have been primarily Mexico and the ASEAN countries, including Vietnam, Malaysia, and Indonesia. Mexico should benefit from a new round of tariffs, but it won't be the only country to gain from it."