As the world prepares for the Trump Administration, global trade finds itself navigating a storm of uncertainty. President-elect Donald Trump’s looming inauguration has reignited fears of a renewed trade war, leaving businesses and governments scrambling to assess the potential fallout from tariffs, port disruptions, and geopolitical instability.
Trade Headwinds Loom Large
The promise of widespread tariffs on major U.S. trading partners in 2025 has cast a shadow over the global economic outlook. Economists are struggling to predict the full impact of these measures on inflation, growth, and monetary policy. With tariffs potentially driving inflationary pressures, central banks face a dilemma—whether to lower rates to cushion growth or raise them to combat inflation. The only certainty is uncertainty.
Adding to these concerns, China has taken a preemptive stance against anticipated U.S. tariffs by imposing export controls on dozens of American companies. The Ministry of Commerce announced restrictions on 28 U.S. entities, prohibiting the export of dual-use items—products that can serve both civilian and military purposes. Sanctions have also been levied against 10 defense firms over military sales to Taiwan. These moves signal that China is prepared to respond aggressively to U.S. trade policies, further complicating the economic landscape.
China’s role as a manufacturing powerhouse makes these measures particularly impactful. Restrictions on dual-use goods could disrupt supply chains, but enforcement mechanisms and the specific scope of affected products remain unclear. Tires, for example, could be classified as dual-use, illustrating the potential breadth of these controls. Such actions come on the heels of stricter U.S. policies against Chinese firms, marking an escalation in the economic standoff between the two nations.
Intensifying Sino-American Rivalry
The U.S.-China trade conflict, already a defining feature of modern global trade, is poised to deepen further in 2025. During his campaign, Trump floated the idea of imposing tariffs as high as 60% on all Chinese goods. While experts consider such a sweeping measure unlikely due to the associated economic risks, targeted tariff increases on critical sectors remain a credible possibility.
These tensions are compounded by China’s retaliatory actions. In addition to export restrictions, China’s Ministry of Commerce recently sanctioned U.S. defense firms over arms sales to Taiwan and announced investigations into major American companies like Nvidia. These measures highlight Beijing’s willingness to leverage its manufacturing dominance as both a shield and a weapon in an economic battle.
US Port Gridlock
Negotiations between the dockworkers’ International Longshoremen’s Association (ILA) and port employers, the United States Maritime Alliance (USMX), face a very short window to produce a new master contract before a coast-wide strike on January 16. The current contract expires on January 15, and automation remains the major impasse between the two sides.
While the ILA secured a 62% wage increase in September, progress on automation has stalled. The USMX argues that automation is essential for improving productivity, while the ILA contends it will lead to significant job losses for dockworkers. Media reports indicate that negotiations are set to continue on January 7, leaving just eight days for the parties to reach an agreement.
The looming strike has prompted carriers to issue advisories to their customers. Maersk, for instance, has urged clients to pick up laden containers and return empties at East and Gulf Coast ports before January 15 to mitigate potential disruptions. The Danish carrier has also begun developing contingency plans to minimize the impact of a potential labor disruption.
German carrier Hapag-Lloyd has announced plans to introduce Work Disruption and Work Interruption Destination surcharges starting January 20. These fees, which will add $850 per TEU for imports to East and Gulf Coast ports, aim to cover additional costs arising from labor disruptions, congestion, and other operational challenges. However, containers already on the water or gated-in before January 20 will be exempt from these charges.
The master contract’s expiration occurs just days before Donald Trump’s inauguration, a factor that could influence the negotiations. According to S&P Global VP Peter Tirschwell, Trump is expected to side with the union, potentially intervening as a “knight in shining armor” to resolve the impasse. Such involvement could lead to a resolution but may further strain relations with ocean carriers.
The uncertainty surrounding these negotiations underscores the fragility of U.S. supply chains. A prolonged strike could paralyze key ports, disrupt trade flows, and escalate costs for businesses and consumers alike.
Geopolitical Turmoil
There’s a lot at stake concerning the world’s major shipping canals. The Red Sea, a hotspot for Houthi shipping attacks throughout 2024, remains fraught with danger. The beginning of 2025 finds Israel now engaged in direct conflict with the Houthis, exchanging aerial bombardments, missiles, and drone strikes. This Iran-backed proxy group has been menacing shipping and denying access to the Suez Canal for most traffic since late 2023.
Israel has taken its response a step further by pitching a full-scale ground invasion of Yemen to the UN Security Council, aiming to dismantle the Houthis entirely. While this echoes Saudi Arabia’s failed attempts in the 2010s, Israel’s aggressive posture underscores the severity of the threat to regional and global trade.
Despite these disruptions, Egypt has pressed forward with an ambitious infrastructure project, completing a new 10km channel in the Suez Canal. This expansion is expected to boost the Canal’s capacity by six to eight ships daily and enhance its ability to handle emergencies. However, environmental challenges loom large. Dust storms, exacerbated by desertification and drought, continue to pose significant risks to navigation, as highlighted in a 2022 report.
Meanwhile, the Panama Canal faces its own tensions. Over the holidays, Donald Trump reignited controversy by accusing China of controlling the Canal. Trump’s claims, though exaggerated, have drawn attention to Panama’s Belt-and-Road investments and Chinese contractors’ involvement in infrastructure projects. Panamanian President José Raúl Mulino has dismissed these allegations as baseless, but the scrutiny remains.
While Trump’s rhetoric suggests potential U.S. intervention, analysts believe the federal government will avoid direct confrontation. Instead, there is likely to be heightened scrutiny of Chinese investments in Panama. The fine print of these deals, particularly those tied to Belt-and-Road, will continue to be a point of contention in the evolving U.S.-China rivalry.
Economic Ramifications
The combined effects of tariffs, labor disputes, and geopolitical turmoil could significantly alter global trade flows. Rising costs and reduced efficiency in supply chains are likely to impact consumer prices worldwide. For developing economies heavily reliant on exports, the economic consequences could be even more severe.
Simultaneously, countries outside the U.S.-China rivalry may seek to capitalize on the shifting dynamics. Emerging markets with robust manufacturing capabilities could position themselves as alternative suppliers, potentially reshaping the global trade map. However, such transitions will take time, and businesses must navigate considerable uncertainty in the interim.
Glimmers of Hope
Amid the challenges, there are potential bright spots. A wave of new cargo vessels is set to enter service in 2025, potentially easing the freight rate pressures that have strained global trade. A resolution to the Red Sea violence could have an immediate and dramatic impact, potentially cutting ocean freight prices by two-thirds or more. Similarly, advancements in trade technology, including blockchain-based logistics and AI-driven supply chain optimization, offer pathways to greater efficiency.
As businesses prepare for 2025, adaptability and resilience will be crucial. While the headwinds are formidable, opportunities remain for those who can navigate the turbulent waters of global trade effectively. We wish all of our clients and partners a prosperous new year.