By Dr. Larry D. Parker, Jr.
Department Chair, Transportation and Logistics Management, Supply Chain Management, Reverse Logistics Management, and Government Contracting and Acquisition
and Dr. William Oliver Hedgepeth
Faculty Member, Reverse Logistics Management
The globalization of industries has brought numerous benefits, such as access to new markets and more market opportunities. However, this globalization has also increased risks, such as increased market competition, disproportionate economic growth and environmental concerns.
One risk that certainly bears watching is tariffs and their effects. The recent announcement by President-elect Donald Trump of his intent to impose a 10% tariff on imports from China and a 25% tariff on imports from Canada and Mexico after taking office could significantly impact U.S. products and supply chains. Overall, these tariffs could lead to production and supply chain disruptions, higher consumer prices, and potential job losses.
How the New Tariffs Would Affect Production
Supply chains for farm produce and manufacturing are intricate and multifaceted. Typically, they involve numerous stages, stakeholders, and processes.
For a farm produce supply chain, there are many areas where tariffs would impact costs. From growing crops to raising livestock, farmers rely on a variety of products such as seeds, fertilizers, water, machinery and harvesting equipment. After harvesting, processes such as cleaning, sorting and packaging are essential.
Also, there is transportation to a processing plant or distribution center, involving logistics and different transportation modes such as trucks, trains, and ships. Finally, wholesalers distribute the produce to various markets, which involves storage, inventory management, and quality control.
In essence, a seemingly simple farmer’s livelihood will be adversely impacted by the new tariffs. The
machinery, the seeds, the cleaning materials, the equipment for transportation – almost every part of this supply chain is subject to a cost increase. It would be like trying to make a salad with ingredients that keep getting more expensive every time you go to the store.
The Effect of the New Tariffs on Manufacturing Businesses
Manufacturing businesses that create car, truck, farm equipment, and construction materials could face higher costs for raw materials and components sourced from Canada, China, and Mexico. For example, the raw materials that go into creating a car include thousands of aluminum, plastics, rubber, and glass parts from these countries.
Engines, transmissions, electronics and tires are also sourced from various suppliers in these countries. As a result, the increased costs could lead to delays in product delivery and increased production expenses.
Each Type of Supply Chain Has Its Own Challenges and Requirements
Both farm produce and manufacturing supply chains have unique challenges and requirements. The farm produce supply chain focuses on managing perishability and seasonality, while the car manufacturing supply chain deals with global sourcing, technological advancements, and regulatory compliance. Understanding these complexities is crucial for optimizing supply chain operations and ensuring the efficient delivery of products to consumers.
Higher Prices for Consumers
The new tariffs on all imports from Mexico, Canada, and China will increase the cost of manufactured goods such as vehicles, dairy products, paper products, and building supplies. These increased costs will likely be passed on to consumers, leading to higher prices for everyday items.
Mexico supplies a wide variety of food products to the U.S., such as:
- Avocados
- Strawberries
- Blueberries
- Raspberries
- Blackberries
- Mangoes
- Limes
- Tomatoes
- Bell peppers
- Cucumbers
- Squash
- Pecans
- Sugar
- Coffee
Similarly, Canada supplies products such as:
- Wheat
- Canola oil
- Canola meal
- Barley (for animal feed and brewed beverages)
- Potatoes
- Tomatoes
- Lettuce
- Blueberries
- Raspberries
- Pork
- Beer
- Breeding livestock
- Seafood (such as fresh or frozen lobster, salmon, and crab)
- Cheese
- Butter
- Maple syrup
- Honey
China’s exports include:
- Garlic
- Ginger
- Apple juice
- Mushrooms
- Tilapia
- Shrimp
- Crab
- Pumpkin seeds
- Sunflower seeds
- Green and black tea
- Bamboo shoots
- Water chestnuts
- Sauces such as soy sauce and hoisin sauce
Electronics, textiles and machinery will also become more expensive. As manufacturing and other supply chain costs increase, the expenses will be passed to consumers in the form of greater expenses at the cash register and inflation.
Rising Costs Could Lead to Job Losses
Facing increased manufacturing expenses, some businesses may find it difficult to continue operating. Consequently, they may go out of business or find other ways to cut costs, such as laying off employees.
How Companies Could Handle the Economic Effects of New Tariffs
There are mitigation strategies to protect businesses and their supply chains from increases in costs as the result of the new tariffs. First, companies could find some alternative sourcing options in countries not affected by the tariffs. For example, they could shift production to countries like Vietnam or India to mitigate any increased costs.
Second, businesses could increase their use of local production sources. That strategy would reduce dependency on imports and mitigate the impact of tariffs.
Third, companies could use other strategies to mitigate possible cost increases such as:
- Stockpiling inventory – Companies could stockpile their products while waiting for any future policy changes or for market prices to stabilize. While this approach may be successful for a period, it is not sustainable. The reality of cost fluctuations will be felt at some point.
- Conduct thorough cost analyses – A thorough cost analysis by supply chain accountants would help company leaders to understand the impact of tariffs on the overall cost structure and identify areas for cost reduction. However, it will also mean adjusting prices to reflect increased costs while maintaining competitiveness.
- Negotiate long-term contracts – A number of industries such as automotive, construction and farming rely on contractual supply agreements. It could be a wise move to pursue long-term agreements that lock in prices that favor the company’s positions. However, the strategic challenge would be to determine how supply chains for all industries would be affected and potentially mitigated by these long-term contracts.
The Economy in the US Will Bear Close Monitoring
Although it is too early to predict the full effect of the new tariffs, it would be wise for farmers and business leaders to closely monitor the impact of any tariffs that go into effect in 2025 and beyond. It’s also possible that Mexico, Canada and China may decide to impose their own tariffs as well. In that event, farmers, business leaders, supply chain managers and consumers will need to pay close attention to how the new tariffs will affect them.
About the Authors
Dr. Larry Parker, Jr., currently serves as the Department Chair, Transportation and Logistics Management, Supply Chain Management, Reverse Logistics Management, and Government Contracting and Acquisition. Dr. Parker is a native of Temple, Texas, a certified Inspector General by the Association of Inspector Generals, and a proud member of professional organizations advancing knowledge and professionalism, such as the Association of Supply Chain Management and the National Naval Officers Association.
Dr. Parker is a published author, inspirational speaker, consummate entrepreneur, and consultant who speaks worldwide on diversity, inclusion, and leadership. He holds a B.A. in history from Wittenberg University, an MBA from Liberty University and a Ph.D. in organization and management from Capella University. Learn more about Dr. Parker by visiting Dr. Larry D. Parker Jr. Inspires.
Dr. Oliver Hedgepeth is a full-time professor at the Dr. Wallace E. Boston School of Business. He teaches and publishes on reverse logistics as well as transportation and logistics. Dr. Hedgepeth holds a bachelor’s degree in chemistry from Barton College, a master’s degree in engineering management from Old Dominion University and a Ph.D. in engineering management from Old Dominion University.
Before his teaching career, Dr. Hedgepeth was an operations research systems analyst for the Department of Defense (DOD) and the Defense Intelligence Agency (DIA). He was an active member of the Military Operations Research Society (MORS) and had many articles published in Phalanx, their magazine used by professionals in DoD and Department of Homeland Security (DHS) and government contractors.
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