Casey Hall/REUTERS
- Some businesses say moving supply chains out of China more costly than absorbing Trump's tariffs.
- Companies are negotiating with manufacturers to...
The Impact of Tariffs on Supply Chains and Consumer Prices
Relocating Supply Chains: Challenges and Considerations
Containers at Yangshan deepwater port in Shanghai, China. Casey Hall/REUTERS
- Businesses struggle with the high cost of relocating supply chains out of China amid Trump's tariffs.
- Companies negotiate with manufacturers to mitigate costs and minimize the impact on consumers.
- Policy uncertainty poses significant challenges for businesses in supply chain planning.
The Trump administration's tariffs on Chinese imports have left businesses grappling with the dilemma of relocating their supply chains or absorbing the increased costs.
However, some businesses contend that the financial burden of finding alternative suppliers and relocating production facilities outweighs the savings from avoiding tariffs.
Michael Wieder, cofounder and CMO of Lalo, a baby product brand, explains, "It can be more expensive to move your supply chain than to absorb the tariff. We don't want to waste money and time on short-term solutions."
Wieder emphasizes the stringent safety regulations for children's products, making it challenging to quickly find qualified factories and engineers abroad that meet the necessary standards.
Wieder adds, "We're working with our suppliers to negotiate lower costs, but the tariffs are inflationary without a doubt."
On February 1, Trump issued an executive order imposing an additional 10% tariff on all products from China listed in the Federal Register, citing concerns over China's role in the illicit drug trade.
While fentanyl remains the main issue at the border, it is estimated that 97% of fentanyl in the US is manufactured using precursor chemicals from China.
President Biden has maintained most of Trump's tariffs on Chinese imports, implementing additional tariffs on specific items like electric vehicles and solar panels. However, healthcare items such as wheelchairs and baby products remain exempt under certain conditions, which are not explicitly mentioned in Trump's latest executive order.
Wieder states, "We're urging the administration to preserve these exemptions. Essential products for children and babies should not be subject to higher costs."
The Dilemma of Key Products and Specialized Sourcing
Other businesses highlight the impossibility of moving their supply chains out of China without discontinuing crucial products or facing significant delays due to specialized sourcing.
Jimmy Zollo, founder of adaptive wear brand Joe&Bella, explains that many of their unique products, such as magnetized zippers and dual-track zippers, are exclusively available from Chinese suppliers.
"Changing manufacturers is not a simple process. It could take months to find the right materials and expertise, considering the high demand among American businesses," says Zollo.
Zollo is focusing on negotiating costs with suppliers and increasing inventory for popular products while recognizing the limited disposable income of their customers who rely on these specialized items.
"Uncertainty surrounds both staying and leaving our supply chain in China. Inaction is also risky," adds Zollo.
Cost Distribution and Impact on Consumers
According to Yossi Sheffi, director of the MIT Center for Transportation and Logistics, the full impact of tariffs is not solely borne by consumers but distributed across the supply chain, including suppliers, manufacturers, transporters, and retailers.
However, Sheffi emphasizes that the rapid changes in tariffs pose a significant challenge.
"Uncertainty makes planning difficult. Businesses prefer stability," says Sheffi. "The prohibitive cost of relocating supply chains has made businesses adopt a wait-and-see approach.
A source within US Customs and Border Protection indicates that tariff-exempt imports from China may still be subject to duties due to recent changes. Further information is still being processed due to the substantial number of inquiries.
