(Not So) Fun Fact: President Trump has threatened to cut off trade with Spain after the country refused to allow the United States to use its military bases to strike Iran.

Conflict in Iran Disrupts Trade Flows

What’s Happening: On February 28, the United States launched military strikes against Iran, igniting a regional conflict in the Middle East that threatens the flow of oil and gas. Roughly a dozen countries are now directly involved or have been retaliated against by the Iranian regime – five of which are among the top 10 oil-producing countries. The Strait of Hormuz – a vital transit point between the Persian Gulf and global trade routes – has effectively been closed, thereby limiting the flow of close to 20 percent of the world’s petroleum. Although the Strait of Hormuz cannot be physically closed like a canal, Iran’s constant threat to attack any ships attempting to transit has resulted in each of the top container shipping companies suspending operations to avoid this hot spot. The Iranian military has already struck multiple tankers with missiles while Iranian proxy groups endanger the Bab el-Mandeb Strait near the Suez Canal, pushing carriers to reroute traffic around Africa.

Why It Matters: The conflict in Iran has already had a noticeable impact on the global economy as it has elevated energy prices, shaken markets, and forced companies to restructure their shipping strategies. Since the strikes on Iran and subsequent closure of the Strait of Hormuz, oil prices have risen more than 10 percent and the U.S. average gas price has risen from around $2.95 to $3.25 a gallon. This trend will almost certainly intensify as the conflict continues, particularly for U.S. energy prices and global shipping costs. By contrast, Consumer Price Index reports for the past year have shown year-over-year U.S. energy inflation has been on the decline. This has helped the Trump Administration’s agenda in lowering prices as well as in serving as a check against tariff pressures on input costs. A protracted conflict with Iran would push oil prices relatively high compared to the lows seen in the past few months, adding to transportation and input costs for businesses as well as raising prices at the gas pump. If the Strait of Hormuz remains closed, it would not only impact energy markets but global food production. As much as 12 percent of nitrogen fertilizer exports flow from impacted countries in the Gulf region as well as 9 percent of global phosphate exports. The restrictive trade environment will likely cause temporary shortages that lead to lower crop yields as well as higher input costs for many food producers that rely on just-in-time deliveries.

The top five largest container shipping companies – MSC, Maersk, CMA CGM, COSCO Shipping Lines, and Hapag-Lloyd – have all suspended operations in the Persian Gulf and rerouted shipping from the Suez Canal to instead travel around the Cape of Good Hope. Together, these companies account for well over 60 percent of global container fleet capacity. In response to the more dangerous shipping environment and necessary rerouting of trade, these companies have increased surcharges by $1,500 to $3,500 per container. In some cases, companies are also raising surcharges for other trade routes such as those between Europe and the United States. While certain additional fees are not set to kick in until April 1, it is evident that global shipping costs will be heavily impacted by the Iran conflict for the foreseeable future – thus creating additional inflationary pressure for traded goods. President Trump has offered both risk insurance and U.S. naval escorts for shipments going through the strait, but this has yet to have an impact and will likely not be enough to ease the additional surcharges.

Looking Ahead: As the length and intensity of the conflict in Iran is unknown, it is impossible to predict the point at which trade in the region will return to normal. What is certain is that the longer the conflict continues, the greater the impact on energy and transportation costs for U.S. consumers and businesses. In some cases, these inflationary pressures may take time to work their way into the economy, but Americans will feel the hit more immediately at the gas station. For the time being, the U.S. government is limited in its ability to ease energy prices while U.S. oil companies will find it a difficult task to replace the restricted supply coming from the Middle East.

The 2026 Trump Trade Agenda

What’s Happening: On March 2, the United States Trade Representative (USTR) released the Trump Administration’s 2026 trade agenda alongside a 2025 report. The document highlights several accomplishments such as reducing the trade deficit with China, an expansion of capital goods exports, an increase in manufacturing productivity, and the United States surpassing Japan in steel production. It also outlines six core focuses for 2026, which include continuing “reciprocal” trade agreements, securing supply chains, and conducting a review of the United States-Mexico-Canada Agreement (USMCA). These focuses are primarily a continuation of the initial 2025 America First Trade Policy memo released in the early days of the Trump Administration. Additionally, USTR covers the various tariff tools the administration has at its disposal with special attention given to Section 301 investigations that can lead to the imposition of tariffs.

Why It Matters: The 2026 agenda and 2025 review shows the Trump Administration’s intent to continue full steam ahead with its current trade policy. Rather than reflecting on the tumultuous nature of “Liberation Day” tariffs or the Supreme Court’s ruling on the International Emergency Economic Powers Act (IEEPA), the administration plans to double down on imposing new trade restrictions. Also missing from the report is any mention of the various instances in which the administration backtracked on tariffs to mitigate the consumer price impact, most notably the exemptions for agricultural imports. Rather than discussing exemptions, USTR highlighted potential Section 301 actions that may result in tariffs that help replace the IEEPA regime. These include actions against other countries regarding pharmaceutical pricing, seafood, global overcapacity, unfair agricultural policies, digital services taxes, and aircraft disputes. A Four-Year Review for the Section 301 tariffs imposed on China during President Trump’s first term will also be something to watch for in May alongside the joint review of the USMCA. Notably, USTR stated that the USMCA was an important step for North American trade but emphasized that there are many issues that need to be resolved. USMCA concerns include the United States’ increasing trade deficits with Mexico and Canada, Mexico’s preferential treatment to some of its companies, Mexico’s inadequate labor laws, and Canada’s violation of dairy market access agreements and maintenance of discriminatory digital measures. While these criticisms are valid, it is unlikely that the administration will prescribe free-market solutions when it comes to reducing the U.S. trade deficit with Canada or Mexico. Focusing on the deficit and requiring these countries to purchase more U.S. products will likely be a major sticking point during negotiations.

Looking Ahead: The biggest takeaway from the 2026 trade agenda is that the administration does not plan to pivot from its first-term tariff policies. Any policy changes or tariff exemptions will likely occur under the radar so that the president and his trade team can mitigate affordability concerns but still save face. While it is possible the administration does not renew the USMCA in July or raises Section 301 tariffs on China after the Four-Year Review, the Shipment anticipates these events to be used as negotiating leverage to extract concessions. With the threat of IEEPA taken away, President Trump will have to rely more on the threat of eliminating the USMCA or shifting the Section 301 status quo with China to achieve concessions.