Importing from China is about to get very expensive

If you are shopping for holiday gifts and decorations this season, check the label for where the products were made. If the label says “Made In China” you can count on price increases in the near future. 

On a recent trip to Target, I found row after row of Christmas decorations, all with “Made In China” labels. China has been the primary source of Christmas decorations, lights, and artificial trees for more than 25 years. Yiwu, a city in Zhejiang province about an hour by train from Shanghai, is known as the “Christmas capital of the world.” Over 600 factories in Yiwu and surrounding areas produce more than two-thirds of the world’s Christmas decorations.

Holiday gifts and decorations are just a few of the items that will likely increase in price based on the increase in import tariff promises made by the incoming Trump administration. The intended effect of high import tariffs is for manufacturing to come back to the U.S. by forcing importers to pay more (up to 60%) tariffs on Chinese imports. This makes domestically-produced goods appear to be price-competitive and imported goods appear to be more expensive. This is supposed to be the incentive for manufacturing these items in America instead of abroad.

However, it is unlikely that low-cost items such as Christmas decorations would ever be manufactured in America. This is because the cost of domestic labor is so much higher than in low-cost countries. Low-tech goods such as decorations, t-shirts, and consumer electronics require a lot of manual labor for assembly work and sewing. It is next to impossible to competitively manufacture products with high labor content in America.

What will happen when demand for these goods such as Christmas decorations remains steady? Consumers will simply have to pay more for goods coming from China because the cost of these imports will increase. Importers are also likely to start sourcing from other countries where U.S. import tariffs are low or zero, such as Cambodia, India, Vietnam, Mexico, Indonesia, Thailand, and Bangladesh. Most of these countries have lower labor costs than China. The universe of low-cost goods manufacturers is constantly on the lookout for low-labor-cost locations to move to.

The trend to find alternatives to manufacturing in China is not just for low-cost goods. Companies manufacturing other products such as industrial equipment, machinery, medical devices, batteries, and pharmaceuticals are considering alternate manufacturing locations. At the Reshoring Institute, many of our clients are considering Mexico in addition to the U.S. for manufacturing.

The world of manufacturing and supply chains is evolving rapidly. It is important for supply chain professionals to understand the economics of production and global supply chains, and develop flexible response strategies and skills.  This is no longer our grandfather’s manufacturing environment. It’s high time to sharpen our skills and determine what to do about import tariffs.

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