Impact of Trade Tariffs: Supply Chains

Supply Chains and logistics are central concepts of product distribution. As a product moves from the manufacturer to the end customers, there is an elaborate process that takes place. This process could take place over multiple countries and several continents. As an end user, we do not see this process, but if the process is highly efficient, consumers benefit with lower priced goods in a competitive marketplace.

However, when tariffs are implemented, regardless of the rationale behind the use of them, increased economic costs are now placed throughout the product supply chain. Many remark that the increase of economic cost is automatically passed on to the end consumer. This is not necessarily true. It depends are the price elasticity, namely, how consumers are price sensitive to the product. For the most part, the firms bare the burden of the increased economic costs of tariffs on goods. This costs impact how companies utilize their supply chain, and the logistics associated therein.

In the manufacturing industry, most major firms do not simply assemble the entire product onsite. The firms will outsource for bid to other firms who can assemble certain aspects of the final product in the another firms’ assembly plant. That other plant maybe in another country, then the product is shipped to the domestic firm for the final assembly with the end product.

Once tariffs are introduced, the increased Econ costs cause firms to re arrange their logistics. Based upon the provisions of the tariffs, firms may have their products, which are assembled abroad, flow into the country’s particular points of entry simply to mitigate the costs of the tariffs.

Proponents of tariffs think it is simple for a firm to pack up and move their operations to a country that not being attacked by protectionist or retaliatory tariffs. Firms plan out massive capital project over many years. These things can not be altered on a whim. This does not mean moving assembly plant operations is not a viable option to handle the increased costs from tariffs. It simply means if the capital project is completed, or close to completion, it makes relocation of these plants highly unlikely. If the tariffs are extremely high, the return on the investment capital is severely impacted.

Here are some links describing the impact of tariffs on supply chains:

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