Source: ITR Economics – November 27, 2024
Uncertainty looms over Trump’s proposed tariffs on Chinese imports. How should businesses prepare?
Our observations are that no one outside of a very small circle surrounding Donald Trump knows if his campaign promise of a 10% universal tariff and up to 60% punitive tariff on Chinese imports is an instance of “promises made – promises kept” or a negotiating ploy. We certainly do not know how fast the tariffs would be imposed or if they would be phased in. Given the lightning pace of his cabinet announcements, we suspect a rapid implementation should be assumed. Three thoughts on this topic:
1. Lessen Supply Chain Exposure to China
ITR Economics’ economists have been speaking on the topic of nearshoring, onshoring, and lessening ties to a China-based supply chain for over a year. If you have not sought out the opportunities that come with nearshoring and onshoring, it is not too late. The trend is likely to continue, if not accelerate, with the potential of high tariffs looming. We encourage companies (and investors) to distance themselves from China, or at least minimize the supply chain exposure – even if the threat of tariffs is only a negotiating tactic – because of the geopolitical risks associated with China’s negative demographic trend, highly leveraged economy, and property market bust.
2. Be Careful Regarding Playing the Mexico Gambit
Keep in mind that businesses should be careful about an over-reliance on using Mexico as a manufacturing platform (whether US owned, Chinese owned, or European owned) because the agreement between the US, Mexico, and Canada (USMCA) is expected to be reviewed in the summer of 2026. 2026 is also the mid-term elections, and low-cost-labor goods coming in from Mexico could become a hot political issue.
3. Be Relentless in Cutting Costs and Aggressive With Price Increases
The imposition of tariffs will cause B2B and B2C prices to rise.