US-China tariffs have been temporarily lowered, leading to a rush for orders during a 90-day period. This situation mirrors the post-lockdown booms seen in late 2020 when global supply chains struggled to keep up with a sharp rise in shipments. The Global Supply Chain Pressure Index shows these pressures, and their effects may become clearer later in the year. However, this is uncertain due to ongoing negotiations between the US and China, which may continue beyond the initial 90 days.

Supply Chain Inflexibility

Supply chains are less flexible than tariff policies. Changes in tariffs do not immediately fix supply chain issues. This week, ocean freight bookings from China to the US soared by 275% compared to last week, signaling increased pressures. There is concern that easing tariffs could lead to higher prices and inflation, similar to what we witnessed in 2021 and 2022. Central banks previously called these pressures “temporary,” but the timeline is still unclear. It’s crucial to monitor data like the Global Supply Chain Pressure Index to understand how current changes impact supply chains and the economy. We’ve experienced this before. When tariffs are reduced, even briefly, people rush to place orders before the chance ends. The current 90-day relief period has sparked a frenzy reminiscent of the lifting of restrictions in late 2020. Back then, exporters rushed to fill ports with goods amid uncertainty about future policies. This led to backlogs, fluctuating prices, shortages in some areas, and overstocking in others. While the chain didn’t collapse, it did strain. This week’s 275% increase in ocean freight bookings from China isn’t just a minor statistic; it’s an early warning sign. A sudden shift in a single trade route often indicates broader adjustments downstream. Spot rates for shipping are likely to fluctuate, rising sharply on stressed routes, spilling into short-term contracts, and increasing domestic logistics costs as warehouses fill erratically. Powell and his colleagues previously framed supply-driven price pressures as temporary, but we spent months trying to identify when inflation would stabilize. Although the Fed’s language may now be more cautious, the market reactions are quicker and harder to overlook. When importers aggressively stock up during a tariff lull, they often front-load their inventories. If these orders coincide with existing restocking cycles, it can lead to a surge in freight demand while available capacity falls short. Consequently, price increases may resemble disruptions rather than recoveries.

Understanding The Implications

We shouldn’t only focus on headline trade data; the Global Supply Chain Pressure Index provides a clearer picture of logistics and manufacturing tightness. In a context where production schedules are influenced by policy windows rather than actual demand, predicting input costs and shipping prices becomes challenging. The US-China negotiation process will likely extend beyond the 90-day period. However, traders should act on the current situation rather than what may happen in the future. Until a formal agreement is reached, market participants will likely operate as if the tariff window won’t be extended. Practically, this means more consortium bookings, early fulfillment requests, and rising premium freight rates compared to standard schedules. Yellen and her team have always emphasized that core inflation readings rely on forward-looking metrics. In this scenario, weekly freight bookings, snapshots of port congestion, and average lead times carry more significance. Inflation isn’t just about rates; it’s also about how efficiently goods move. If this mobility is strained, price pressures escalate quickly. For those interpreting signals from these disruptions, the focus isn’t merely on the direction of tariffs but on the mismatch between suppliers’ capabilities and importers’ demands. When these diverge too much, hedging activity increases—first in rates tied to shipping capacity, and then affecting energy costs and currency movements. Remember: supply adjustments don’t always keep pace with demand; they often lag. While the initial response may appear strong—high bookings and increased order volumes—we should be cautious about how that strength evolves. Excess inventory in the later quarters can quickly decrease profit margins. We will continue to monitor short-term rates for containerized freight along with regional warehouse capacity indexes. These indicators provide better insights than traditional inflation reports, which often overlook the very fluctuations that can inform trade strategies. Create your live VT Markets account and start trading now.

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