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What Are Tariffs, What Do They Mean for American Manufacturing, and How to Prepare

The last five years have been particularly challenging for manufacturing worldwide. We’ve faced a pandemic, supply chain disruptions, inflation, and now, tariffs. In this article, we’ll explore the short- and long-term effects of tariffs on American manufacturing, what do they mean to American shops, and most importantly, how to navigate this new economic policy.

What Are Tariffs?

Wikipedia defines a tariff as: “A tax imposed by the government of a country or a supranational union on imports or exports of goods.” But what are the ramifications to our industry? How will it affect manufacturing costs, and could it benefit shops in the United States?

The concept of Tariffs isn’t new. They were popular throughout most of the 20th century and were widely successful for American manufacturers.

Back then, not only were most manufactured goods simpler, but labor was also relatively inexpensive in the U.S., making domestically produced goods more affordable than their European counterparts.

But times have changed and now things are very different. Manufactured goods are now more complex, labor costs at home have risen, and Europe is no longer the only competitor in the manufacturing space. Since 1980 till now we have been participating in a globalization effort that has reshaped our industry, most of the finalized products carry parts from all over the world and no one product is manufactured by a sole provider.

What Do Tariffs Mean for American Manufacturing?

Now that we understand the history of tariffs in the U.S., we can comprehend the reason behind the comeback of this policies, the idea is to once more consolidate homemade manufacturing by implementing the tariffs. But now the question is: will this strategy succeed?

The answer is simple: we don’t know. The only thing that we can do is look to history to understand how tariffs on specific products have impacted manufacturing.

In 2018, the U.S. government-imposed tariffs of 20% to 50% to all washing machines imported to the United States. This led to a combine investment of $490 million by LG and Samsung, and the creation of over 2000 new jobs.

The tariffs also brought 82 million to the United States Treasury, but they did increase the cost of washing machines for the end consumer. We can see a parallel with the tariffs imposed by President Reagan to Japanese automobiles they had a similar outcome as the washing machines, they increase foreign investment, reduced our trade deficit with Japan but ultimately increase the price of the final product to the American consumer.

With these two examples we can conclude that these tariffs on end products are beneficial for American manufactures, but the tariffs that are being negotiated today are very different, the new tariffs will affect raw materials, small parts and energy not only a final product like cars and washing machines.

Therefore, every imported tool, material, and essential component that U.S.-based manufacturers rely on to produce a final product will see a cost increase of 20% to 30%—potentially even electricity.
This surge in expenses creates uncertainty across the industry, impacting manufacturers of all sizes. However, the burden will be heaviest on inefficient shops, which may struggle to absorb the rising costs.

How to prepare?

In the long run tariffs will benefit our industry overall, but the initial price shock will be a difficult situation for most shops to navigate.

Efficiency is king! To navigate and leverage this new economic policy, we have a couple recommendations:

1. Investigate all process and expenses that are likely to have a price hike and find a strategy to internally reduce these expenses

a. Energy consumption (machining run time)
b. Tool cost
c. Materials scraped because of collisions or tolerance errors

2. Be prepared to take on new jobs

a. There will be demand for new parts that were previously imported, is important that American shops are ready to take on new projects.
b. Training on new machining strategies on your software and understanding the full capabilities of your machines is key to take on new parts.
c. Marketing, make your shop visible online.

3. Be open to change

a. Don’t let past practices limit future success.
b. Stay adaptable
c. Upgrade to modern solutions that optimize workflow and minimize expense

Sources

What Are Tariffs? (YouTube) – A short video explaining tariffs and their impact.
Tariff (Wikipedia) – A basic definition and explanation of tariffs.
History of Tariffs in the U.S. (Wikipedia) – A look at how tariffs have shaped American trade policies over time.
Trump’s Washing Machine Tariffs (New York Times) – How tariffs on washing machines affected U.S. manufacturing and prices.
Washing Machine Tariffs & U.S. Manufacturing (IndustryWeek) – A look at how tariffs led to more domestic production.
The U.S. and Tariff Wars (Al Jazeera) – A history of U.S. tariff battles with other countries

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