Reshaping of the U.S. trade landscape

Proposed widespread tariffs represent a new challenge for companies, with few good answers

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Not long after President Donald Trump announced last this week that that the United States will implement 25% tariffs on U.S.-bound imports from Canada and Mexico, effective Feb. 1, he subsequently said that the nation would also levy a 10% tariff on U.S.-bound imports from China.

A Reuters report indicated that the impetus for the tariffs on China is due to fentanyl is being sent from China to the U.S. via Mexico and Canada.

In an executive order last week, Trump directed federal agencies to study trade relationships with China, Canada, and Mexico, the three largest U.S trading partners. Noting tariffs implemented during his first administration, Trump said, “This spurred an American revitalization marked by stable supply chains, massive economic growth, historically low inflation, a substantial increase in real wages and real media household wealth, and a path toward eliminating destructive trade deficits.”

While specifics regarding tariffs are yet to be made available, Matt Muenster, chief economist for Green Bay, Wisconsin-based Breakthrough, a transportation management firm, told Supply Chain Management Review sister publication Logistics Management that, at a high level, these planned tariffs are partially driven by the movement of Chinese goods through Mexico into the U.S.

Muenster said he expects more policy focused upon the flow of goods, particularly through Mexico and Canada.

“I think what we’re seeing in some of the policy directed in Mexico, that part of the focus is making sure that Chinese goods weren’t simply being passed through Mexico and into the U.S.,” he said.

While the stated tariffs on China are below what was previously touted, Suppyframe CMO Richard Barnett said that a 10% U.S. tariff on Chinese imports will nonetheless increase electronic component pricing and have a disruptive impact upon the entire electronics supply chain.

“Consider the printed circuit board, which is used in almost anything that has a plug. The hyper-growth of the AI data center segment is reliant on high-layer-count PCBs, and China represents over a third of total production,” said Barnett. “Chinese firms also enjoy around 60% market share for other advanced PCBs used in AI, servers and myriad end markets. While AI gets all the attention, worldwide aerospace & defense demand for PCBs is growing markedly and electronic component sourcing in the space is in China-Zero verses China-Plus-One modes.”

In a recent interview, Chris Rogers, S&P Global Market Intelligence research director, said in looking at the first quarter tariffs are the main theme for supply chain decision-makers.

“The first quarter looks to be strong, but things could rapidly slow down as the year goes on, with the fourth quarter potentially down 10% to 12% as the impact of tariffs starts to make itself felt, both in terms of a reduction in overall trade, but also a reduction to a strong fourth quarter a year earlier,” he said.

On a more positive note, he explained that this is not the first time shippers have been preparing for the unexpected as things were similar in 2018, when tariffs on China were initially rolled out by the Trump administration.

“There is likely to be some front-loading and probably more increasing prices this time than last, last time,” he said. “Maybe the difference this time around is that tariffs could well be much more widespread. If tariffs are widespread, there’s no point in doing anything other than just putting your prices up, because it doesn’t matter where you go, you’re still going to face higher tariffs unless you bring everything back to the U.S. But if it was cheap to bring everything back to the U.S., they already would have done so. Tariffs really are the main game in town.”

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Proposed tariffs on Mexico, Canada and China are creating a new dynamic in U.S. global trade relationships, but there are few good answers for companies to mitigate the impact.
(Photo: Getty Images)
Proposed tariffs on Mexico, Canada and China are creating a new dynamic in U.S. global trade relationships, but there are few good answers for companies to mitigate the impact.
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About the Author

Jeff Berman, Group News Editor
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Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

View Jeff's author profile.

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