Trade uncertainty complicates supply-chain planning

Businesses need greater policy stability and predictability for long-term investment and supply chain planning, but continued shifts in US trade policy are fueling uncertainty, said Douglas Irwin, a professor of economics at Dartmouth College.

Irwin made the comments during a media briefing with Port of Los Angeles Executive Director Gene Seroka on Wednesday, discussing tariffs, global commerce and the changing trade landscape.

Responding to a question from China Daily about continuing US-China dialogue and tariff adjustments, Irwin said policy predictability is essential for businesses considering long-term investments.

"Businesses absolutely need that predictability of the business environment to make medium-term and long-term investments," he said.

Trade tensions between China and the United States intensified after the Trump administration imposed sweeping tariffs in 2025. Although both sides have since taken steps to ease tensions and continue dialogue, uncertainty over future trade policy remains.

Irwin described the current US-China trade relationship as relatively stable but fragile.

"We're now stabilized, but we're in sort of this uneasy truce," he said. "In terms of restoring US-China trade, I think it's going to be difficult, precisely because we don't have assurance that that truce will hold."

Companies do not know whether Washington will maintain current tariff levels or renew pressure on China after completing other trade negotiations, including the review of the United States-Mexico-Canada Agreement, he said.

"We just don't know, and that's going to be a deterrent to reinvesting in China or relying on China for imported goods, as opposed to going to Vietnam or another Southeast Asian country, or maybe even more locally, Mexico, for long-term sourcing," Irwin said.

Businesses therefore have little choice but to diversify their supply chains and hedge against further policy changes, he added.

Irwin said Trump has been the main driver of US trade policy during both of his administrations and continues to regard tariffs as leverage for achieving broader economic and political objectives.

"For the next two years, at least, we still have to keep our eye on what the president believes about trade and how he might act," he said.

The US Trade Representative has proposed new Section 301 duties linked to other economies' enforcement of prohibitions on goods made with forced labor. Proposed rates range from 10 percent to 12.5 percent, although the measures were still under review at the time of the briefing.

Irwin said importers should pay close attention to what replaces the temporary Section 122 tariffs when they expire.

"Those tariffs are going to roll off," Irwin said of the Section 122 measures, adding that the administration is seeking to replace parts of the temporary system through Section 301.

He said the proposed measures could preserve much of the current tariff structure while creating additional uncertainty over which countries and goods would ultimately be affected.

"This is sort of the environment we're going to be in for the next two years: uncertainty about USMCA, uncertainty about the China relationship, and then uncertainty with these Section 301 tariffs," he said.

The treatment of low-value shipments is also changing. The United States has suspended duty-free de minimis treatment for many packages valued at $800 or less and introduced new processing requirements.

Irwin said the changes will create greater compliance and administrative burdens for small importers accustomed to receiving low-value shipments by mail with limited customs procedures.

Seroka said the effects would extend beyond consumers purchasing products online to family-owned businesses that rely on imported goods.

He recalled visiting retailers on Melrose Avenue in Los Angeles and West Hollywood that had built their businesses around smaller shipments.

"Then suddenly they were hit with tax hikes that were almost insurmountable based on the size of their business," Seroka said. "It's going to be a big deal for us coming up."

Looking beyond the current administration, Irwin said future presidents may seek greater stability in trade policy, but are unlikely to restore the system that existed before the tariff increases of recent years.

"I think there will be a settling down after the Trump administration," he said. "Any new administration, whether it's Republican or Democrat, will still be concerned about trade policy in a big way, but want more stability."

However, once tariffs are imposed, companies adjust their supply chains and domestic industries develop an interest in maintaining the protection they provide, he said.

"That doesn't mean we go back to where we were in, say, 2015 with respect to trade policy," Irwin said. "What tends to go up quickly sometimes comes down slowly."

Trade policy is not the only source of uncertainty for businesses. Seroka said conflict involving Iran and disruptions around the Strait of Hormuz have increased fuel costs for ocean vessels, trains and trucks moving cargo through the Port of LA.

He said the immediate effect is visible in the price of bunker fuel used by ships and in higher diesel and gasoline costs for transportation operators and consumers.

Despite concerns that cargo bound for the Middle East could disrupt major Asian ports, Seroka said visits to Shanghai, Singapore and Yokohama showed that operators had successfully separated affected cargo flows.

"Our cargo is flying through the market as best it can without impacts from what's going on with the war in Iran," he said.

The next effect is likely to be higher fuel surcharges passed from shipping lines to importers and exporters, Seroka said.

"You'll see a bump there," he said. "When prices go down, usually that surcharge remains elevated and it lags for some time before it gets back to a price point that's a little more reflective of what we see today."

Even if the conflict ended immediately, damaged energy infrastructure and disrupted supply networks would take time to repair, Seroka said.

"There's much more work to do," he said, while noting that "so far, the trans-Pacific trade continues to move and at good rates".

renali@chinadailyusa.com