At the 10% tariff most American companies are pushing their Chinese to absorb or share it. At 25% there is no way Chinese suppliers can absorb it, the tariff would be added to the cost of the product and you would see inflationary price increases. The USA consumer will be paying for MOST if not all of this.
Your “lots of other low cost producers...” comment reflects a very naive opinion of the reality of managing supply chain. Right now, China is the world’s factory, not because of low labor, but because they have the raw material and factory infrastructure to feed the buyers of the world. India, Vietnam, etc...just cannot compete.
“Your “lots of other low cost producers...” comment reflects a very naive opinion of the reality of managing supply chain.”
You are being naive.
There are advantages to having the whole suite of capabilities, but that is not a permanent condition. That supply chain was shifted from the USA to China. It can, and will change again. It already is.
Hundreds of major companies are now in the process of moving their production out of China, and the supporting supply chain and infrastructure is developing at those new locations, as it is beginning to wither in China.
Labor costs and real estate in China have risen markedly over the last two decades. The cost of intellectual property theft has skyrocketed in China - it is virtually certain to occur there. Foreign Direct Investment in Chinese manufacturing began drying up years before President Trump’s election because of these and other factors.
Do you think that the rest of the world is uniformly incapable or unconcerned about developing their own economies, with integrated supply chain efficiencies? Quite the contrary - competition is fierce. If anything, the path to doing so is clearer now than when China set out to develop theirs. Not only are competing countries aggressively pursuing this, but manufacturing giants eager to leave China have been assisting them - sometimes able to write their own laws and regulations for the accommodating new Countries to use. US led International Development Agencies, like the World Bank, can drop in a set of best practices, and have been financing the needed infrastructure developments. It is the development opportunity of a generation, and a rush is on to get the biggest possible slice.
India, Thailand, Indonesia and Vietnam are well down the road to take large chunks of sophisticated manufacturing business from China. Korea and Japan are pulling a significant amount of their Chinese production back home with big investments in robots. Mainland Chinese producers themselves have been increasingly off-shoring their own low cost production to Myanmar, Ethiopia, Bangladesh and elsewhere for several years.
The trade deals that the Trump Administration renegotiated with all of our major trading partners outside of China - Mexico, Canada, the EU, Japan and Korea; went so quickly precisely because we were dividing up China’s piece of the pie among us. There is a global consensus among developed economies to shift the supply chain out of China, because of their lawless lying, cheating and stealing; as well as the frightening aggressiveness they have exhibited on so many fronts. China has collected many enemies with its behavior, whereas its allies consist mainly of North Korea.
“Lots of other low cost producers” are already shipping competitive products, at competitive prices. US consumers have seen very low price inflation, relative to historical norms so far in this process (the first $30 billion/year of new tariffs). The President himself tweeted yesterday (5 May), “The Tariffs paid to the USA have had little impact on product cost”. The shift out of China will speed up now with these larger tariffs, but broad preparations have been underway for years. It has been very well planned and managed by this Administration.
We will just have to see how much the new tariffs result in new costs to American consumers. The worst case - a dollar for dollar transfer of the tariff cost directly to the consumer - would be $30 billion dollars a year over a $20 trillion dollar economy. That would be equivalent to the price of gas going up 20 cents a gallon. So far though, the rise in prices to American consumers has been only pennies on the dollar of new tariffs - lost in the noise of of other factors.
The replacement of suppliers has been proceeding smoothly and efficiently. It has been basically transparent to Western consumers.
“Right now, China is the world’s factory, not because of low labor, but because they have the raw material...”
Wrong.
Raw materials is a major weakness and competitive disadvantage of manufacturing in China. They are exceptionally dependent on imports of raw materials, including oil - their energy costs are also relatively high because of that.
“India, Vietnam, etc...just cannot compete.” They obviously can, and are. India has more people, lower wages, faster demographic and economic growth, and a higher skill level. They are the second largest producer of Ph.D.s in the world after the USA, and have a much higher level of English language capability and cultural understanding of the US society and market.
Apple supplier Foxconn is shifting their main production from communist China to India, and Netgear announced this week that they are following.
Last one out, turn out the lights.
There is a saying now current in China. This may be the worst year in a decade, but it will be the best year of the next decade.
Japan’s “lost decade” after its bubble burst, stretched into two decades. By financial measures of debt and currency mis-valuation, China is significantly further out of balance than Japan was. We can manage an orderly withdrawal of the supply chain from China over several years, but a major debt and/or currency crisis there will likely be a big hit to the global economy. Another reason for businesses to get out while they can.
Americans will pay most direly with the continued takeover by China.
Trump is doing heroic work on this front.
And the outward economy and consumer prices are only pieces of the full picture.
We will be far better off and in the long run save more as a country if we localize what we can from our China trade and get the bulk of it shifted to less threatening and more free actual allies—like India.