Trump tariffs on China will soon bring 'irreversible' damage to many American businesses

Apple's iPhone and other technology hardware, from chips to PCs, received a China tariff reprieve from President Trump on Saturday, but for much of the U.S. economy and small business owners, the damage will soon be irreversible from the 145% tariffs being imposed on Chinese imports.

Canceled freight orders and abandoned freight from China are quickly becoming the norm in the trade war between the U.S. and China, according to supply chain executives, as businesses across U.S. industries put a full stop on container exports, with the tariffs hitting like a ton of bricks.

"Furniture producers in China have seen a complete halt in orders from U.S. importers, and we're hearing the same across toys, apparel, footwear, and sports equipment," said Alan Murphy, founder and CEO of Sea-Intelligence.

"We had the same across Southeast Asia, but after the 90 day reprieve those bookings have restarted," said Brian Bourke, chief commercial officer for SEKO Logistics, while the cancelled bookings for containers out of China continue. 

"Almost everything is on hold as it relates to China business," said Alan Baer, CEO of OL USA.

"Trump's 145% total tariff on Chinese imports would stop most trade between the U.S. and China, economist Erica York, vice president of federal tax policy at the Tax Foundation's Center for Federal Tax Policy said on Thursday on CNBC's "The Exchange."

"There may still be some things without any substitutes that companies just have to foot the bill, but for the most part, that cuts it off," York said.

As it became clear over the last week that China would remain the main target of the Trump administration's tariffs policy — after the 90-day reprieve was granted to all other countries expected to be hit with new tariffs — the message that came through is that lower-margin goods cannot sustainably be produced in China. The new exemption for technology can be partially explained by the how the supply chain works, but also reinforces where the greatest pain will be felt.

"Higher-margin and more technical goods, such as electronics, machinery, medical equipment, and pharmaceuticals cannot easily move sourcing, as setting up highly technical manufacturing takes time and considerable capital," Murphy said.

Before the tech tariff exemption, he says producers of these goods were analyzing what components could be sourced elsewhere, while primarily looking to draw down U.S. inventories in the short term. There is a concerted effort to move production to South East Asia, primarily Vietnam, or India. Lowering prices to Europe to keep production going, or outright closing down production lines, were also being considered.

'Not a risk or burden small business can sustain'

Stephen Lamar, CEO of the American Apparel & Footwear Association, said the sudden policy changes and high tariffs are disrupting supply chains at a level not seen since the pandemic.

"With prohibitively high tariff levels on U.S. imports from China, many companies have no choice but to cancel orders," said Lamar. "The constant switchbacking means new tariff costs are not accurately presented or predictable until the goods arrive at the port, and the high rates are generating bills that can't be paid. That is not a risk or burden small business can sustain."

Lamar said with no alternative sourcing on the horizon for many of these companies, particularly small businesses, this sudden lack of orders will immediately translate into lost sales and widespread product shortages. "An extension of the trade war pause to U.S. imports from China is needed now before the damage is irreversible," Lamar said.

Integrated logistics giant Maersk has warned that on the container liner side of its business, the drop in bookings coupled with the possibility of shipbuilding fees on "Chinese" vessels also going into effect next week, will result in a "massive restructuring of all liner services to North America."

"And it will take months to sort out the mess, with congestion and freight rate spikes for months to come," Maersk wrote to clients.

Murphy said across all of the Chinese-based producers his firm has spoken with, none are currently actively looking to move production to the U.S., with part of the reason being lack of understanding about the administration's ultimate aims.

"The biggest concern here is a complete uncertainty of the actual end-game of the Trump administration," he said. "No-one will consider massive investments in U.S. production if tariffs are merely a ploy to negotiate better trade deals. If the administration is actually pursuing a goal of US reindustrialization, then the long-term plan for tariffs has to be clear, and less talk of '4D chess' and A'rt of the Deal,'" he said. "The Yo-yo tactic of changing tariff rates on a daily basis does nothing but create uncertainty," he added.

Holding on freight processing is one way of mitigating the impact of tariffs. Logistics providers can offer bonded storage, which allows freight to come into the U.S. without being charged a tariff for a certain amount of time. Foreign trade zones and delayed transits, as well as relabeling of already dispatched goods sitting in warehouses, are other methods.

"The current circumstances are unprecedented," said Karsten Kildahl, chief commercial officer at A.P. Moller-Maersk.

Abandoned freight

The fate of abandoned ocean and air freight — cargo that isn't claimed or paid for by the shipping company or the freight forwarder responsible for paying customs on behalf of their client — isn't clear and rules change port to port, and contract to contract.

Port officials tell CNBC they are not typically notified of abandoned cargo. The New York Terminal Conference Agreement states that cargo remaining on the terminal in excess of 30 days will be considered as abandoned and sold for collection of demurrage charges due to the NYTC — charges assessed for leaving freight at terminals for an excessive period of time. It also said the ultimate responsibility of the costs usually depends on specific shipping contracts. "If the BL (Bill of Lading) hasn't been transferred to the consignee, it is the shipper's responsibility. The shipper could decide to take the cargo back (i.e. re-export the cargo), destroy or donate it."

Shippers usually prepare a "letter of abandonment" for Customs purposes for the cargo to be sold or auctioned, with proceeds from the sale/auction paying any expenses, such as use of container and chassis, and with the balance for the terminal. 

The terminal can move abandoned cargo to a bonded warehouse or leave it on the terminal and sell it from there. There is a market for buying abandoned freight. Companies such as JS Cargo & Freight Disposal, FR8 Auctions or Merchandise USA buy abandoned cargo and then sell it in discount stores, outlets, liquidators, online sellers like Amazon, drug chains, variety outlets, redemption centers, liquidators, and closeout buyers.

Maersk tells CNBC many shippers are deploying a "wait and see"-approach and in a recent alert to clients wrote that until there is a clearer picture, customers will be cautious about their inventory levels and continue exploring ways to build additional flexibility into their supply chains. Across its global network of warehouses, distribution centers, port terminals, vessels, and cargo planes, "extra flexibility" is what many clients are seeking now, he said.