The Impact Of Trade Tariffs On Cross-Border Commerce

The economies of most countries are sustained on the foundation of international and cross-border trade, with the U.S. being a quintessential example, as consumer spending powers both its economy and the economies of countless other countries around the world. However, global trade movement took a volatile turn when President Trump took office, as threats of increased trade tariffs caused international relations to turn sour, compelling the freight industry to absorb the market shock.

Cross-border trade within North America was subject to intense scrutiny as well, with President Trump proposing to scrap NAFTA, a pact that pioneered seamless cross-border trade through the creation of a North American trade bloc, and replacing it with an improved version called the USMCA, expected to come take effect by 2020.

More shocking was President Trump's recent idea to impose 5 percent tariffs on all Mexican imports, which led to shockwaves across both sides of the Mexican border. This resulted in representatives of the Mexican government meeting with the U.S. government last week, yielding a deal that promised to rein in migration numbers into the U.S. from Mexico, thus putting an end to the tariffs, at least for the time being.

FreightWaves spoke with Ohad Axelrod, the CEO of Fr8Hub, a logistics technology startup based in Laredo, Texas, to understand the impact cross-border tariffs might have and the issues that the freight hauling industry is currently witnessing in these erratic times.

"Life is now much better and a lot more normalized compared to what it was before April this year. In the first half of April before the USMCA report, the border crossing times were three times longer than typical times, which caused tightness in capacity," said Axelrod. "This had a huge impact on freight planning from the shipper's perspective. A shipper we work with was very concerned because it roughly took a day or two for a dry van to cross borders at the beginning of April."

Several shippers that moved perishable goods closed down their cross-border trade for a while, because they were miffed that their cargo was being stopped at the border for long periods, leading to shipments idling in Laredo's extreme heat – impacting the shelf life of perishables.  

"We knew one company that moved cargo 15-20 times across the border every week, but ended up reconfiguring their shipments on pallets to make hauling more efficient and reducing the number of trips to 10 per week," said Axelrod. "This is to accommodate the tightness in capacity, as goods took a lot longer to cross the border. On the other end, hauling prices had increased dramatically as well."

Though the Mexican tariff issue has been resolved for now, Axelrod pointed out that no one knows what will happen going forward. "If the tariffs do indeed go into effect, some manufacturers will divert sales to other markets instead of the U.S., but I think that will have little effect on the overall trade because the U.S. is such a dominant trade partner for Mexico," he said.

Commerce between the U.S. and Mexico is worth $620 billion annually, with 80 percent of the goods being hauled in trucks across borders. Thousands of carriers, shippers, customs brokers and freight forwarders make their livelihood on the cross-border freight industry, and would be the first hit in the possibility of a trade war.

"In the big picture, businesses between the U.S. and Mexico have continued to grow through the years, despite administrative changes and the numerous ups and downs between governments," said Axelrod. "The U.S. and Mexico definitely need each other, and so eventually the manufacturers and purchasers will find a way to accommodate the regulations and continue to do business by adjusting prices, timing and whatever else is required to move forward."

Image Sourced by Pixabay