Uncertainty for U.S. freight industry amid tariff plans

The potential impact of these measures could be severe for a sector already undergoing a recession.

The U.S. freight transportation industry, valued at $1.7 trillion, faces an uncertain future if the plans of President-elect Donald Trump to impose tariffs on its key trade partners—China, Mexico, and Canada—come to fruition. According to industry experts, these measures could worsen a recession that has already been affecting road transportation for nearly three years.

The road transport sector is a fundamental pillar of the national economy, as it is responsible for transporting all the goods consumed by Americans, thus activating the supply chain. The trade policies implemented by Trump could have adverse effects, such as rising prices and reduced demand. How? It’s simple: tariffs increase costs, which in turn reduces demand, resulting in less freight. This is explained by Jason Miller, interim director of the supply chain management department at the College of Business at Michigan State University.

Tariff effects: decline in demand and revenue

Donald Trump stated that tariffs, like the 25% on products from Mexico and Canada and an additional 10% on Chinese goods, aim to protect domestic jobs and pressure these countries on issues beyond trade, such as border security. However, tariffs could also act as an additional tax on consumers, whose spending is the main driver of the U.S. economy.

As a result, most major U.S. transportation companies and railway operators, would be exposed to the effects of these tariffs, potentially leading to a decline in revenue. Although some companies are preparing for the possible consequences of tariffs, uncertainty remains, and the impact could be significant.

The potential impact of these measures could be severe for a sector already undergoing a recession, the longest since the 2008 financial crisis. According to Michael Castagnetto, president of transportation at C.H. Robinson Worldwide, any new import taxes could make the situation even worse. In fact, the value of goods being moved between the U.S., Mexico, and Canada has recently increased, making tariffs a potential negative factor for one of the few growth areas in the sector.

Tariffs in cross-border rail trade

On the other hand, cross-border rail trade, though affected, remains an opportunity. Especially for companies like Canadian Pacific, which merged with Kansas City Southern in 2021 to create an integrated rail network between the three countries. However, the growth plans of rail companies could be hindered if tariffs cause a significant slowdown in trade.

In summary, the future of freight transportation in the United States largely depends on the decisions the new administration makes regarding tariffs. Experts warn that while free trade in North America grew during Trump’s first term, the new trade ideals could have harmful effects on both the transportation industry and the economy in general.