The US transportation industry, a $1.7 trillion sector and key economic indicator, faces potential disruption from President-elect Donald Trump’s proposed tariffs on major trading partners like China, Mexico, and Canada. Experts warn these tariffs could exacerbate the ongoing trucking recession, now nearing its third year.
The transportation industry, responsible for moving goods across the country, is highly sensitive to trade policy shifts. As Jason Miller, interim chair of supply-chain management at Michigan State University’s business college, explains, “Tariffs like those proposed will raise prices, and higher prices mean less demand. Less demand equals less freight.” This sentiment underscores the potential for significant negative consequences stemming from the proposed tariffs.
Major transportation companies, including trucking giants J.B. Hunt Transport Services (JBHT) and United Parcel Service (UPS), and railroad operators Canadian Pacific Kansas City and Union Pacific, are all vulnerable to revenue declines if tariffs are implemented. While J.B. Hunt and UPS declined to comment, railroad operators indicated they are prepared to adapt if necessary.
Trump’s rationale for the tariffs is job creation and revenue generation to offset planned tax cuts. However, economists and transportation executives point out that these import levies essentially act as a new tax on consumers, potentially dampening consumer spending, a primary driver of the US economy. Furthermore, the tariff threats may be a tactic to pressure trade partners on non-trade issues, such as border security and immigration. However, these countries have not yielded, arguing that tariffs harm all parties involved.
Trump has proposed a 25% tariff on goods from Mexico and Canada, contingent on these countries addressing immigration and fentanyl flows into the US. He has also pledged at least a 10% tariff increase on Chinese goods. As the world’s largest importer and second-largest exporter, the US would experience decreased trade flows in both directions under these tariffs, according to Mary Lovely, a senior fellow at the Peterson Institute for International Economics. She anticipates the new tariffs could take effect as early as the second or third quarter of next year.
The trucking sector, representing about a third of US transportation, is particularly susceptible. Previous tariffs imposed by Trump contributed to a trucking recession throughout most of 2019. Dean Croke, principal analyst at DAT Freight and Analytics, warns, “We’ve seen this movie before, so we know how this plays out…All I see is more disruption and tit-for-tat tariffs.”
The current trucking downturn, lasting almost three years, is the longest and deepest since the global financial crisis, according to Michael Castagnetto, president of North American surface transportation at C.H. Robinson Worldwide. New import levies would compound existing challenges, including stagnant industrial production and lingering overcapacity from the COVID shipping boom.
Tariffs on Mexico and Canada would particularly impact a rare growth area for trucking. Trade between these countries and the US, encompassing vehicles, auto parts, avocados, steel, and lumber, reached $88.5 billion in September 2024, a 7.7% year-over-year increase. Castagnetto highlights the integrated nature of the North American supply chain, with freight often crossing multiple borders, making the US vulnerable to retaliatory tariffs.
Trump’s actions could also disrupt railroad companies’ growth strategies. The $17 billion trans-border rail freight market, while down 5.4% year-over-year in September, remains a significant opportunity. Canadian Pacific’s recent merger with Kansas City Southern, creating CPKC, aimed to capitalize on China’s growing manufacturing presence in Mexico. While acknowledging past trade tensions, a CPKC spokesman emphasized the ultimate increase in North American free trade during Trump’s first term.
In conclusion, the proposed tariffs pose a substantial threat to the US transportation industry, potentially exacerbating existing challenges and disrupting supply chains. The economic consequences could be significant, impacting businesses and consumers alike. While some companies are preparing for potential disruptions, the uncertainty surrounding trade policy creates a challenging environment for the transportation sector.
