Apollo’s Torsten Slok Unveils Timeline For Trade War Fallout

The first wave of the trade downturn is already affecting the U.S. West Coast, with the Port of Los Angeles experiencing a sharp decline in containerized imports from Asia, following months of elevated frontloading by U.S. importers. 

For those tracking trade developments in recent weeks, this freight downturn was entirely predictable:

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• First Tariff Shock Set To Hit Port Of Los Angeles, With Ripple Effects Across The Broader Economy

• Trade War Shock Looms For Port Of Los Angeles As Goldman Identifies Most-Impacted Products

• Imported High-Volume Staple Goods From China Are About To Dry Up

Last month, Chinese manufacturers shut down production lines, and exporters suspended shipments to the U.S. in response to President Trump’s 145% tariff trade wall. The one-month delay in the U.S. economic impact reflects the time it takes cargo ships to sail China-US West Coast shipping lanes.

The latest scheduled import volume data from Port Optimizer, a tracking system for vessel operators, shows that the economic impact of the tariffs on Chinese goods has already begun to take effect. 

Torsten Slok, chief economist at Apollo, laid out a presentation for clients of what to expect in the weeks ahead:

The consequence will be empty shelves in U.S. stores in a few weeks and Covid-like shortages for consumers and for firms using Chinese products as intermediate goods.

In addition, we will soon begin to see higher inflation because there are a significant number of product categories where China is the main provider of certain goods into the U.S. market.

In May, we will begin to see significant layoffs in trucking, logistics, and retail—particularly in small businesses such as your independent toy store, your independent hardware store, and your independent men’s clothing store. With 9 million people working in trucking-related jobs and 16 million people working in the retail sector, the downside risks to the economy are significant.

In a separate note, Goldman analyst Trina Chen outlined which Chinese products are most likely to be impacted if shortages materialize over the next couple of months.

Slok’s chart above illustrates that the front-loading surge in imports ended abruptly just ahead of President Trump’s “Liberation Day” tariffs. The sharp drop in containerized volumes from China came off previously elevated levels. More or less, this was a natural lull that developed and quickly reversed due to tariffs. 

The consequences of the tariffs could lead to Covid-like shortages of high-volume staples from China once warehouse inventories run dry. However, no retailer will allow shelves to go empty—they’ll be forced to reorder at higher costs and pass those increases on to consumers. That’s why inflation could see a resurgence. Still, this may take months—possibly a full quarter—to fully unfold, by which point a broader U.S. economic downturn may already be in motion.