As Trump rolled out two 10% tariffs against China to address border security and stop the fentanyl precursors that are arriving from China, China has retaliated with tariffs. After the first 10% tariff, China retaliated by announcing 15% tariffs on chicken, wheat, corn, and cotton imports as well as a 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products. When the second 10% tariff was announced, China retaliated by taxing many American farm goods at up to 15%, suspending U.S. lumber imports and blacklisting 15 U.S. companies. Since trade is lopsided (with a trade deficit of almost $300 billion), China went after the U.S. agricultural goods since it would inflict the most harm.
 
Lisa Anderson from LMA Consulting Group, discussed with the team at Make Me Smart what these tariffs mean, when the impact would be felt, and what could be done to address them. In essence, the tariffs go into effect immediately, even if the goods are in transit. This is particularly difficult for companies since they lack control over the process near-term. Since many companies have been ordering ahead to mitigate the impacts of tariffs, they can work through inventory before dealing with the tariff price increase. According to experts in China, it is likely for Chinese companies to absorb some, if not all, of the tariff cost increase at least near-term as they want to ensure continued volumes. It is likely to be somewhat volatile with short-term, choppy price increases that results in mild inflation overall. Of course, it depends on which industries, which products, and which companies as individual companies will be impacted. On the other hand, the tariffs China imposes could immediately impact agricultural products. These companies must diversify their customer base to mitigate the impacts.
 
Longer term, companies must reshore and expand regional supply chains to regain control over their supply chains, revenues, and margins. Refer to our article, Manufacturing Resurgence Taking Flight, for more insights on how to transition to a regional supply chain and create a resilient supply chain. Go beyond backup sources of supply and diversify your end-to-end supply chain, transition away from suppliers related to geopolitical risk, and take control over critical sources of supply.

For more on this topic see Make Me Smart – Episode 1349: Tariff on the Brain