US President Donald Trump imposed tariffs of 10-50% on international trade, to which many countries are responding in kind. How will Trump’s decision affect Baltic Sea shipping?
The tariffs now imposed are at least 10% on foreign products entering the US, 20% on EU products and even more than 50% on Chinese products. The tariffs will have a major impact on trade to and from the US, but it should not be forgotten that the global economic and shipping impacts of this measure are also significant.
In addition, the maritime industry is suffering severely. We could hope that we here in the Baltic Sea countries would stay out of global trade wars, but unfortunately this is not the case.
The consequences of a US trade war in the Baltic Sea are threefold
Firstly, maritime traffic to and from the US is already decreasing. When the prices of consumer goods imported into the United States rise due to tariffs, people there buy fewer foreign products. Raw materials or semi-finished products entering the United States also become more expensive. And counter-tariffs also make products manufactured in the United States, for example to Europe, more expensive – all of which reduces trade with the United States.
Our incomes fall
The decline in demand for shipping on the oceans also affects the Baltic Sea. If demand at sea falls, there will be a surplus of ships in maritime traffic, which will lead to ships looking for new markets – including in the Baltic Sea. This increases the supply of ships in Baltic Sea traffic and thus lowers freight rates in Baltic Sea shipping. This in turn means lower income for Baltic shipping companies.
Secondly, trade conditions are reducing international trade and shipping worldwide. More and more companies want to buy parts and raw materials from Europe instead of the United States, because they are cheaper in the short term. Initially, container traffic between the Baltic Sea states and United States may decrease, and substitute products will be transported by ro-ro ships or trucks from Europe.
A global recession is ahead
But as the world’s most famous economist, Adam Smith, and all the great economists after him, wrote in his book The Wealth of Nations back in 1776, international trade increases the wealth of all nations. The basic idea is that when countries produce and export what they are most skilled or capable of, everyone wins. The other option is that countries imposing tariffs are not forced to improve their competitiveness and end up with old-fashioned products. This phenomenon is familiar to people who lived through the Soviet era.
As a result, the global development of production and innovation is now weakening. This will lead to a more or less prolonged global recession. Then the goods transported will decrease and competition at sea will increase, which in turn will reduce the profits of the Baltic Sea shipping industry.
The damage has already been done
Third, however, we can hope that President Trump changes his mind and repeals the tariffs. Even if he does, the damage has already been done. International supply chains are based on trust. In order to make a deal to buy or sell products to other countries, you need to be able to trust the other partner and the terms of transport: for example, how much transport costs and how reliable it is. As we are now seeing, the rules of the global economy are changing very quickly and unexpectedly, so trust between partners in other countries is disappearing. It will take years, perhaps decades, to rebuild international supply chains.
The coming downturn in shipping will soon affect shipbuilding. With less goods to transport, new ships will not be ordered, leaving less work for shipyards and their subcontractors.
What can we do to avoid the worst?
The only way to survive the coming shipping recession is to focus on strengthening competitiveness. The goal should be to be the best on the market, also operate better in many respects – to offer the best quality at the lowest price, but also to prepare for increasingly stringent environmental requirements.
One thing is clear – fundamental changes are underway in global supply chains and transport more broadly.
This opinion piece was published on April 8, 2024 in Postimees magazine in Estonian.
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