Economic Briefing
April 2nd Reciprocal Tariffs Hit – But Uncertainty Might Continue to a Degree
There is a lot of uncertainty in the rules and applications of the new US tariff policy, but it looks like there will be a 10% tariff imposed on all trading partners which will go into effect on April 5th. In addition, the US will impose a tariff equal to 50% of the difference between the tariffs that foreign partners are charging the US and what the US charges them. In other words, if there is a tariff from a country of 50% on a US product, the US will now impose a minimum reciprocal tariff of 25% on their goods. Some tariffs, on the surface, could be as high as 35-40%.
At the time of writing, analysts were still trying to understand the full impact of these tariffs on the economy. Partners have an opportunity to reduce their tariffs to reduce the overall impact, and some countries have already mentioned that they will match current US tariffs. In the coming days and weeks, negotiations are likely to continue behind the scenes, but Treasury Secretary Scott Bessent has said that this decision is likely to be the “ceiling” for tariffs. That will at least give companies an opportunity to figure out how they will manage their business going forward (and whether to shift sourcing or make cost adjustments to compensate).
Q1 GDP Estimates Continue to Plummet as Concerns Over Tariffs and Import Imbalances
The Atlanta Fed’s estimate on Q1 GDP through the end of March showed that it has deteriorated in the last 30 days and was showing contraction perhaps as steep as 3.7%. As mentioned last month, one of the footnotes with this month’s economic growth estimate is that there was an extraordinary volume of gold being imported into the US along with companies inbounding freight early to try and get ahead of tariff risk. When there is a large trade deficit, it negatively detracts from GDP.
But other metrics have started to show some strain, including the key consumer spending estimate. After adjusting for inflation, consumer spending was growing at just a 0.1% rate, which is essentially flat. With consumer spending accounting for 70% of GDP, this is a critical component, and consumers were showing some stress. Corporate spending was also thrown into a holding pattern by tariff uncertainty, nonresidential fixed investment was still positive on the surface but spending on equipment fell by 7.8% Q/Q.
Like many other measures, it is easy to start hyperventilating when seeing some of this data during this period of transition and volatility. Peeling back the layers of the onion, there is still a fundamentally good economic undercurrent. And it is also important to remember that most analysts are still calling for 1.7% to 2.1% growth for the US in 2025, for now. But the near-term pressure is real, and as has been seen in the past, sometimes people can talk themselves into recession.
US Manufacturing Still Expanding, but PMI Slips in March
The S&P Global PMI slipped from 52.7 points in February to 50.2 at the end of March. This was trending in the wrong direction, but with a reading above 50, it showed continued (but mild) expansion. New orders were stalled in March and hiring has also stalled. Investments on production expansion were also being held up by tariff uncertainty (executives looking for more certainty on tariff direction and the “permanence” of those orders). And after the April 2nd announcement, it may not create the certainty that executives were looking for. There is still too much room for negotiation.
But there could be a bright spot in the monthly survey. S&P Global commented that
“While business confidence about the outlook remains relatively elevated by standards seen over the past three years, this is based on companies hoping that the near term disruption caused by tariffs and other policies will be superseded as longer-term benefits from the policies of the new administration accrue. However, March has seen more producers question this belief. Business optimism about the year ahead has deteriorated further from January’s near three year high and has dropped sharply over the past two months…”.
It will be important that Congress work to make changes more permanent, so that companies can operate with more confidence.
Inside This Edition
Q1 GDP Estimates Continue to Plummet as Concerns Over Tariffs and Import Imbalances
The Atlanta Fed’s estimate on Q1 GDP through the end of March showed that it has deteriorated in the last 30 days and was showing contraction perhaps as steep as 3.7%.
US Manufacturing Still Expanding, but PMI Slips in March
The S&P Global PMI slipped from 52.7 points in February to 50.2 at the end of March.
Disruptions in Maritime Shipping Could Impact Capacity Availability
There is a lot of change taking place in the global supply chain.
Trucking Signals Stable in March
Truck shipping prices according to the Producer Price Index (which includes a blend of contract and spot rates and fuel) for truckload was down 0.4% in February (latest available).
Air Cargo Prices Remain Mixed on Tariff Scrambles
The air cargo sector was still providing some critical relief for supply chain managers that were attempting to get ahead of tariff risks.
Transportation Briefing
Disruptions in Maritime Shipping Could Impact Capacity Availability
There is a lot of change taking place in the global supply chain. US attacks on Houthi installations in the Red Sea are attempting to open up commercial transits in the region, but analysts believe that it will remain largely closed until mid to late Q2 at the earliest. Houthi Rebel capacity to wage attacks on shipping vessels has been greatly reduced in recent weeks, but the threat continues for now and many firms are still reluctant to try and transit the Suez Canal region as a result. Again, this is affecting 8-10% of global maritime capacity.
The second development was a recent live fire exercise conducted by China in the Taiwan Strait that temporarily halted shipping activity in the region. This exercise was reportedly designed to simulate creating a blockade on shipping lanes in the area, and it has many shipping firms concerned that it might be the start of more common pattern. It was estimated to have impacted the transit times of nearly 256 vessels. Again, at this time these are just acting as temporary disruptions, but it makes scheduling challenging.
There is also some uncertainty being created by a proposed rule that would tax Chinese-built vessels that dock at US ports. This rule is still in the public comment stage, but if imposed, could potentially create some disruptions in ocean distribution. Although a final rule will be required to understand how shipping firms may react, scenarios ranging from reducing the number of port calls (trimming US port-to-port and short-sea-shipping capacity) by Chinese-made vessels to shifting of that capacity to Asia/European markets and shifting European-built vessels to Asia/US trade lanes (which would reduce total US/Asia maritime capacity). The workability of this is still in question, but industry experts are sounding the alarm for administration officials about the potential disruptions in the supply chain that this rule would create.
For now, overall container rates published by Drewry in the spot market are still showing general Y/Y easing (much of this because of slowing global economic activity early in 2025).
Trucking Signals Stable in March
Truck shipping prices according to the Producer Price Index (which includes a blend of contract and spot rates and fuel) for truckload was down 0.4% in February (latest available). But it was marginally higher by 0.9% year-over-year. Many are still trying to understand whether this is partially due to the clearing of supply chain activity as companies worked to get ahead of tariff risk, or if it is also part of a start to a stronger freight cycle.
LTL was a sharply different story. Although the month-over-month change doesn’t seem like much, a 0.7% monthly growth rate is a strong annualized rate. Of course that won’t continue, but the year-over-year rate grew at a 6.1% pace, which was more in-line with historical rate growth in a wake of a significant bankruptcy (such as the 2023 Yellow exit).
Rail freight activity was also still positive early in the year (at least temporarily). Although prices were unchanged month-over-month, they were still trending 3.0% higher year-over-year.
Through March, DAT Trendlines showed trucking load posts up 22.2% while truck availability posts were down 28.9%. This difference in supply/demand pushed load-to-truck ratios (LTR) up by 54.1% Y/Y to 5.02 loads for every available truck (higher than the 3.5 LTR posted last year at this time and 2.6 in 2023). Spot TL van rates were still not moving much, they were up just 0.5% at the end of March.
Again, as mentioned, much of this surge in activity was largely due to shippers trying to get ahead of tariff risk. And as a result, there are now some questions about the lag effect of what this means for Q2 order demand and activity. Some of the tariffs under discussion may have a May 2nd implementation rate, and some additional activity could get pushed into April to try and get ahead of those impacts now that more clarity has been shared.
Air Cargo Prices Remain Mixed on Tariff Scrambles
The air cargo sector was still providing some critical relief for supply chain managers that were attempting to get ahead of tariff risks. Many firms opted to push smaller shipments of expedited freight to beat tariff risks that hit in early March (many of which were ultimately delayed until after the April 2nd ‘final’ announcement). Rates according to the inbound price index were still 7.9% higher than they were a year ago, despite a sharp drop between January and February of 7.2%.
Outbound air freight prices according to the BLS came in 1.2% lower between January and February but were marginally higher by 0.7% year-over-year. The outbound export activity is obviously much lower than US import volumes, but many foreign sourcing managers were also concerned over retaliatory tariffs against US goods, and they were also trying to get ahead of tariff risk born out of their home country.
Looking forward, there is still a strong argument for international air cargo to remain stable as companies that did not do early inbound freight work through the volatility that will come from trade negotiations. Many companies decided to “ride it out” and may alter their order volumes and frequency in the weeks ahead based on how specific negotiations are going with a particular country. For instance, some countries have already decided to match the US tariff (which effectively lowers their tariff on US goods). There would be little advantage in advanced ordering for those supply chain managers, knowing that prices for US goods would actually be lower in a short period of time. Of course, the risk also goes the other way, which is why many could decide to use smaller shipment sizes to keep their options flexible and responsive to changes.
