New tariffs of potentially 25% or more on imported goods levied by the United States are creating major upheaval in manufacturing worldwide. The situation is quite fluid, changing almost hour by hour, as negotiations with trading partners continue. Certain exemptions, delays, and confusion about the penalties’ coverage and amount further add to the uncertainty. For right now, though, they are here, and here to stay in the foreseeable future, so they have become a key consideration for manufacturers inside and outside the country.
What are the Goals of the Tariffs?
The tariffs are being instituted by the new administration for several different reasons, but all have the same ultimate goal of strengthening American manufacturing and the overall American economy. Some are being put in place to match tariffs, taxes, and what are perceived as unfair practices that American manufacturers are forced to contend with in the markets of some countries, while others, like those against Mexico, Canada, and China are designed to also force policy changes in those nations concerning drug interdiction, immigration security, and in the case of China, intellectual property theft, as well as trade practices.
Brian Knapp, the Supply Chain Advisor for the New Hampshire Manufacturing Extension Partnership says, “If we continue down those avenues of trying to generate money from our imports, it’s going to be a push for us to get more suppliers into the U.S. building what is necessary. I think we’re being very aggressive, and it’s a problem for us if the supply base doesn’t catch up to us in the time frame that we’re going to be pushing towards.”
How are American Manufacturers Challenged?
Many items needed by U.S. manufacturers simply are not available presently from American suppliers and therein lies the problem. In cases where the production of those items was sent elsewhere to take advantage of lower labor costs in another country, the tariffs will reduce, or possibly eliminate that advantage, making it more attractive to ramp up domestic production, thereby adding U.S. jobs and more control of the supply chain. In situations where certain raw materials are not physically available in the United States, and must be imported, unless substitute or synthetic replacements can be found domestically, there will be no choice but to include the cost of the tariffs in finished products, unless or until the trade barriers are equalized and reduced between countries.
Almost certainly, the initial impact will cause prices for materials and goods sourced from other countries to rise. Exactly how much remains to be seen, as much depends upon the results of the current negotiations. However, if the intended goal of having tariffs and restrictions reduced against American-made products is met, then we should see a price reduction, as well as a larger market for domestic products in other markets. Further, if negotiations on drug and immigration policies are successful, we will see not only reduced prices as tariffs are removed but also less danger from fentanyl and drug and human trafficking. Beyond all that, the expansion of domestic manufacturing capabilities to counter shortages and price hikes will only add to our country’s strength and security.
How Are American Consumers Impacted?
The uncertainty of how this all will play out is certainly not helpful to manufacturers, while probably the safest course of action is continuing the efforts to expand the sourcing of materials and components in the U.S. Obviously, as pricing for imported goods rises, manufacturers in this country will have to adjust the prices of their finished goods accordingly. A tariff on a relatively small portion of components in a finished product will have a much smaller impact on the end price of the item, whereas, in cases where imported materials make up a significant portion of the finished product, prices will likely see a substantial increase.
In cases such as the automobile industry, where entire finished products are built in other countries, price increases could be very substantial for consumers, and manufacturers have already begun making plans to move more vehicle production into the United States. The housing industry, which will have large cost increases for lumber imported from Canada, is caught in a situation where it will take time for the domestic lumber industry to ramp up production numbers to meet builders’ needs, and there will likely be no alternative but to raise prices to cover increased costs soon.
What Does the Future Hold?
Adding to the uncertainty surrounding the tariff issue are the political takes on the subject. Opponents of President Trump’s “America first” focus, holding a more free-trade worldview, warn that this policy will lead to certain destruction of the economy with businesses and consumers suffering as a result. Of course, those putting the policy in place feel that much ultimate good will come from the tariffs–or threats of tariffs–as we strengthen the country’s manufacturing base and bring industries back that were off-shored in the past. That offshoring left us at the mercy of other nations that did not have America’s best interests at heart.
Treasury Secretary Scott Bessent is optimistic that tariffs will not cause long-term inflationary pressures, saying, “The economic program is a whole of government, holistic program. I think we could get a one-time price adjustment, [but] across the continuum, I’m not worried about inflation.” He went on to say, “This is what tariffs are meant to address; leveling the playing field such that the international trading system begins to reward ingenuity, security, rule of law, and stability, not wage suppression, currency manipulation, intellectual property theft, non-tariff barriers, and draconian regulations.”
Only time will tell what the effects of this hardball negotiating policy will be on the U.S. economy. It could negatively affect the economy, or it could lead to a stronger, broader, more self-sufficient domestic manufacturing base.
As Brian Knapp sums up, “If we could actually break down barriers, and get manufacturers into the U.S., it’s a good time, it’s a great time, for manufacturing, and any manufacturing in the U.S. helps America.”
