Trump’s Wide-Ranging Tariffs Could Complicate Supply Chains

Unlike in President Donald Trump’s first administration, manufacturers may have no place to hide as widespread tariffs could disrupt global supply chains.

Trump’s tariffs unveiled last week that will be levied against imports from a long list of countries, including 34% on goods from China, 26% on India, and 20% on the European Union. Trump has said the goal of the tariffs is to reorder global trade and bring more manufacturing back to the U.S. However, economists think that instead of relocating to the U.S., manufacturers may just get tangled up in supply chain challenges.

“Broad tariffs across global trading partners, unlike prior narrower bilateral ones, limit the ability of the global trading system to adapt,” wrote Deutsche Bank economists and researchers. “This comes at the cost of fundamentally undermining global supply chain models that have emerged over the past several decades.”

Wide Range of Tariff Targets Leaves Little Room for Supply Chains to Adapt

After Trump first introduced tariffs on China during his first term in 2018, supply chains reoriented through countries like Mexico and Vietnam. However, Vietnam is now facing a 46% tariff under the new policy, and Mexico has already been hit with a 25% tariff on all goods not covered by the USMCA trade agreement.

Many manufacturers are also reluctant to move their operations to the U.S., where labor is often more costly than where they are currently producing their products. According to an Apollo analysis, the typical U.S. manufacturing worker earns nearly $6,000 a month, while their counterpart in China makes just over $1,100, and an Indian manufacturing worker only makes around $195.

That means importers have few options to avoid the tax this time around.

“If the U.S. imposes high tariffs on Mexico, China, India and the European Union, and cuts off aid to major resource economies in Africa, there isn’t much room left for the global supply chain to move,” said Vidya Mani, University of Virginia associate professor of business administration, during an interview on the school’s website.

Supply Chain Changes Could Be Costly for Companies

Some industries will be impacted by supply chain disruptions more than others; apparel and automobiles are particularly susceptible to trade disputes. In some cases, it will be more cost-effective for companies to pay the tariffs than relocate their production, Mani said. 

“Changing the supply chain in response to high tariffs is a massive undertaking and lasts beyond any one administration,” Mani said.

And while some of the tariff costs will be passed onto consumers, it’s also likely that profit margins will drop for corporations that import into the U.S. 

“We will be paying close attention to where sales are generated and the level of cross-border trade within companies to establish how they might be affected,” wrote Janus Henderson fixed-income portfolio managers Brent Olson and Tim Winstone.