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The Impact of Tariffs on U.S. Manufacturing
New York-based manufacturer Gear Motions sources most of its components from U.S. suppliers, with only about 4% of its inputs coming from other countries. While this percentage may seem small, the 10% base tariff that has been in place since early April is causing significant challenges for the company. Specializing in custom-cut and ground gears, Gear Motions is now forced to pass these increased costs onto its customers. CEO Dean Burrows explained that the company has explored finding alternative U.S. suppliers but hasn’t found any that can match the quality and specifications required.
The Trump administration introduced these tariffs as part of a broader strategy to “reverse the decades of globalization that has decimated our industrial base.” However, economists remain skeptical about whether these measures will be enough to revive the U.S. manufacturing sector. Many U.S. manufacturers that rely on imported materials may end up passing on the cost increases to consumers rather than reshoring their supply chains.
According to a 2022 report from the Commerce Department, nearly one-third of U.S. manufacturers’ intermediate inputs are sourced from abroad. Nancy Qian, an economics professor at Northwestern’s Kellogg School of Management, warned that in the short term, these tariffs could hurt both factory owners and workers. Additionally, consumers may face higher prices for goods they previously purchased at lower costs.
Challenges of Shifting to U.S. Suppliers
The idea of moving production back to the U.S. sounds promising, but it comes with its own set of challenges. Trump’s tariffs aim to position the U.S. as a global leader in manufacturing by encouraging new factories and investments. However, building a domestic supply chain can be costly. A CNBC survey of 380 companies found that nearly two-thirds believe constructing a new domestic supply chain would at least double their current costs. Sixty-one percent of respondents said it would be more cost-effective to move production to a country with lower tariffs.
Nancy Qian noted that while the U.S. might succeed in shifting some production out of China, it’s unlikely to bring a significant amount back. Other countries offer lower manufacturing costs, making them attractive alternatives. Even if tariffs boost U.S. manufacturing, it will take years for new factories to become operational, leaving many companies struggling in the interim.
Real-World Examples of Struggling Businesses
Companies like 000Skin, a beauty brand based in New York, have faced difficulties sourcing materials domestically. Founder Hannah Chang relies on Chinese manufacturers for her skincare containers, citing the advanced infrastructure and capabilities in China. Rising import costs have made it harder for her to find alternatives, and she’s considering raising prices to cover the 30% tariff rate.
Similarly, Courtney Rivenbark, founder of Coco Clem, initially looked into U.S. manufacturers when launching her apparel and jewelry brand. However, high production costs led her to partner with a Chinese factory that aligned with her ethical and environmental goals. She noted that China’s advanced technology and established supply chain make it difficult to find comparable options in the U.S.
The Question of Job Creation
While some businesses are increasing their investments in the U.S., it remains unclear whether this will lead to a significant influx of manufacturing jobs. Cra-Z-Art, a New Jersey-based toy manufacturer, recently announced plans to expand its production space by 50%. Chairman Lawrence Rosen emphasized the importance of controlling the company’s future and reducing reliance on global tariffs. He also highlighted the role of automation in keeping production costs competitive.
Despite claims by the White House that Trump’s policies have spurred trillions of dollars in new U.S. manufacturing investments, some experts question the long-term impact. Michael Strain, director of economic policy studies at the American Enterprise Institute, pointed out that setting up a factory in the U.S. is a long-term investment that requires stability. Frequent changes in tariff rates make it difficult for businesses to plan effectively.
Economic Uncertainty and Manufacturing Trends
Recent data suggests that the U.S. manufacturing sector has faced headwinds due to trade policy uncertainty. According to a survey by the Institute for Supply Management, manufacturing activity contracted for the third consecutive month in May, reaching its lowest level since November. Meanwhile, the sector lost about 8,000 jobs between April and May, despite an overall increase in employment.
Susan Helper, an economics professor at Case Western Reserve University, believes that while tariffs can be useful tools, the uncertainty surrounding trade policy has hindered investment. Companies are waiting to see how things develop before making significant commitments.
As the debate over tariffs continues, the future of U.S. manufacturing remains uncertain. While some businesses are adapting to the changing landscape, others are struggling to find viable alternatives. The long-term success of these efforts will depend on a variety of factors, including technological advancements, labor costs, and global economic conditions.
