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ASCM Insights

More Tariff Troubles for Manufacturers

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A week ago, another round of U.S. tariffs on Chinese imports took effect. These taxes have been specifically designed not to affect consumer goods, as Apple iPhones, textiles and toys have been largely excluded from the tariffs. Instead, the 25 percent import taxes on $34 billion worth of Chinese goods will affect American manufacturers either financially or by unraveling their global supply chains, Financial Times reports. 

A survey by the National Association of Manufacturers found that manufacturers expect input prices and sale prices to rise by 5 percent within the next year. However, some strategists in support of the tariffs argue that corporate tax cuts will help offset these costs. They add that reshoring will strengthen the value of the U.S. dollar, which will limit domestic inflation. 

Electronics and machinery purchases, which make up the majority of Chinese imports into the United States, will likely be hit the most. The United States imported $146 billion worth of Chinese electronics and $109.63 billion worth of Chinese machinery and other mechanical appliances in 2017. Other affected products include metals, which represented $25.38 billion in 2017 imports, and plastics, which totaled $16.33 billion.

The Financial Times also notes that the semiconductor supply chain, which straddles the United States and China, will take a hit. At the same time, these tariffs could indirectly impact the U.S. nuclear industry, because the new tariffs will make it more expensive to construct new reactors.

Business Insider published the full list of 818 Chinese goods affected by the tariffs, ranging from products such as aircraft tires, engines and engine parts, to agricultural vehicles, livestock equipment and food processing machinery, among other items.

Because these tariffs impact behind-the-scenes goods, like components, equipment and machinery, it is difficult to assess the impact the new taxes will have on the full supply chain. However, analysts expect that U.S. industries will be unevenly affected by these tariffs. U.S. carmakers, for example, shouldn’t be affected too much. Few cars sold in the United States are from China. The industry also will remain relatively unscathed because auto parts are excluded from this round of tariffs. 

The White House has noted that these tariffs are an attempt to adjust a trade imbalance between the United States and China. However, the taxes also likely will encourage equipment and component manufacturers to reshore their supply chains. Although there often is a cost savings involved with offshoring labor and sourcing materials and components internationally, these financial benefits may be outweighed by the new tariffs.

Tariffs on another $16 billion in Chinese goods are scheduled to take effect in the next week. The White House is prepared to add taxes on an additional $200 billion worth of Chinese products if the Chinese administration responds with more of their own tariffs. At the same time, challenges and costs for manufacturers will continue to increase as the tariffs issue intensifies.

Risky business

Whether companies choose to reshore, continue sourcing from China or identify another international sourcing partner in this midst of this escalating tariff war, supply chain managers will need to consider how this choice affects their supply chain risk. The APICS Dictionary defines supply chain risk as, “The variety of possible events and their outcomes that could have a negative effect on the flow of goods, services, funds, or information, resulting in some level of quantitative or qualitative loss for the supply chain.”

To prepare supply chain manufacturers to handle risks for their companies, APICS offers the Risk Management Education Certificate. By earning this certificate, professionals demonstrate their ability to balance rewards and risks in the decision-making process and develop a global risk mitigation strategy. Learn more about the certificate today.

About the Author

Abe Eshkenazi, CSCP, CPA, CAE CEO, ASCM

Abe Eshkenazi is chief executive officer at ASCM, the largest nonprofit association for supply chain and the global leader in supply chain organizational transformation and innovation. Prior to this, he was the managing director for the Operations Consulting Group of American Express Tax and Business Services. His leadership roles have included project management, business process redesign, and individual and organizational alignment. Eshkenazi may be contacted through editorial@ascm.org.

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