The Economic Implications of the Trump Tariffs on Manufacturers

Date January 22, 2025
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On November 25, 2024, President-elect Donald Trump announced his intention to impose tariffs on Canada, China, and Mexico. The President-elect stated these tariffs would be one of his first executive orders after being inaugurated, and he would impose a 25% tariff on all imports from Canada and Mexico, and up to a 100% tariff on all imports from China. This article will explain what a tariff is, examine what goods the U.S. imports from Canada, China, and Mexico, discuss the potential effects on manufacturers, and provide options to help manufacturers prepare.

What is a tariff?

A tariff is a tax imposed by a government on imported goods. This tax is paid by the American company importing foreign goods. When a country puts a tariff on an imported good, the intent is to protect domestic industry from international competition for a strategic purpose. The protection of the less competitive domestic industry causes an increase in the cost of that product making the foreign goods more expensive. The increased cost of protecting a domestic industry is paid for by all other consumers and businesses of the importing country.

What goods do the United States import from Canada, China, and Mexico?

Per the U.S. Census Bureau, Canada, China, and Mexico are the United States’ largest trading partners and account for about 40% of all imports. Major imports from Canada include crude oil and natural gas, machinery, lumber, and iron. The U.S. is greatly dependent on Canada to meet our energy needs. Additionally, about 25% of all lumber consumed in U.S. construction is imported from Canada. Major imports from China include electronics (smartphones, laptops, tablets, semiconductors, etc.), toys, and lithium batteries. Almost every single American has a smartphone, but no tech company manufactures them domestically. Major imports from Mexico include vehicles (including parts and equipment), electronics and appliances, crude oil, fruits and vegetables, and beer. Not only does the U.S. import a significant number of cars and trucks (and related parts) from Mexico, but many of the top U.S. automakers have production facilities in Mexico that ship into the U.S.

What will the effects be on manufacturers and how can you prepare?

With nearly half of all U.S. imports being affected, no industry will be immune from the impacts of the tariffs. Transportation, shipping, energy, construction, food, electronics, communications, and many other sectors will be impacted. The tariffs and supply chain restructuring that would follow will lead to many challenges for manufacturers including increased costs on both domestic and foreign goods at all stages of production. Manufacturers should review their supply chains to evaluate direct vulnerabilities to tariffs on imports from these countries. Manufacturers should also consider identifying domestic or alternative foreign suppliers for these goods. If stockpiling goods is an option, manufacturers should consider evaluating the cost/benefit of procuring goods from these countries now before the tariffs are put in place. Alternatively, manufacturers could consider increasing the safety stock of their most critical imported components in case of supply chain disruption or price volatility. To reduce price volatility, manufacturers could consider negotiating long-term contracts with fixed pricing or exploring bulk purchasing options with their suppliers.

The most immediate impact of the tariffs will be cost increases on nearly every good sold in the U.S. which will disrupt production and send ripples through the supply chain. Manufacturers will need to evaluate their options quickly as Trump has pledged that enacting tariffs would be one of his first executive orders upon taking office. This is before considering that Canada, China, and Mexico have all indicated they would retaliate with tariffs against U.S. exports if President-elect Trump followed through on his campaign pledge and recent announcements to impose tariffs. The situation is still developing and there will surely be more to follow.

To discuss the Trump tariffs and strategies for your company, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.

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