The US has postponed reciprocal tariffs but kept many others in place, causing headaches for companies like Honey-Can-Do over costs and manufacturing locations.
On April 9, US President Donald Trump announced a 90-day delay in imposing high reciprocal tariffs on dozens of major trading partners, just half a day after they were implemented. Import tariffs were therefore reduced to 10% - the rate applied to nearly all countries selling to the US. Global investors and economists breathed a sigh of relief. But for businesses that rely on overseas supply chains, the pain is far from over.
Steve Greenspon - CEO of home appliance manufacturer Honey-Can-Do International - moved some of its production from China to Vietnam during US President Donald Trump's first term. The company makes items such as shelves, coat hangers and laundry baskets for US retail giants such as Walmart, Target and Amazon.
Before Trump took office, about 70% of its products were made in China. Now, that figure has dropped to 30% as Honey-Can-Do moves its supply chain overseas.
The 10% tariff imposed by the US on all trading partners on April 5 has added to Greenspon’s woes. He has invested heavily in a new location. “It’s a blow to our company. I’m very disappointed,” Greenspon said.
Moving production back to the US is also not an option, given the high labor costs and lack of necessary infrastructure. He believes that import tariffs will force businesses to raise prices, making their goods less competitive.
The US-China trade tensions during Trump's first term prompted businesses to seek a "China + 1" strategy. Accordingly, they moved part of their production from China to other Asian countries, both to take advantage of lower labor costs and to neutralize the risk of US import tariffs.
However, Trump's new tax policy has forced businesses to rethink. "The China + 1 strategy has been severely damaged by the new import tariffs. The ability to restructure the supply chain and shift production to countries with better trade relations with the US is no longer there," Eswar Prasad, professor of economics and international trade at Cornell University, told CNBC.
Under the new policy, from April 5, imports from other countries into the US will be subject to a 10% tax. Meanwhile, the rate applied to China will increase to a total of 125% during Trump's second term.
In theory, this difference means that manufacturing in other countries may still have an advantage over China. "But the goal of building a global supply chain is to reduce costs and increase efficiency. Tariffs have eliminated that," Prasad said. The cost of maintaining a "lean, lightweight cross-border supply chain" would increase many times over.
US stationery seller Simplified has been making its products in factories in China since 2013. On CBS, director Emily Ley said tariffs "would destroy" her business, adding $630,000 to the cost of operations next year.
"We had to raise prices after previous tariffs. But this is too much," Ley said. To save costs, the company has cut wages and scaled back expansion plans in recent years.
Matt Weyandt, co-founder of chocolate maker Xocolatl, doesn't even have the option to buy locally, since cocoa can't be grown in the US.
"Cocoa is already expensive, and now we have to pay another 10% tax. Tariffs won't bring jobs back to the US, they'll just hurt domestic chocolate makers," he said.
Still, economists and supply chain experts expect tariffs to be reduced as the Trump administration negotiates with other countries. Daniel Newman, CEO of research firm The Futurum Group, predicted on CNBC that "more equitable trade deals" will be reached with partners like Vietnam and India.
"I talk to a lot of CEOs. They say the way they've been coping for the past decade is faltering. The current uncertainty makes it impossible for them to build a plan to mitigate the impact effectively," Newman said.
Businesses affected by import tariffs are working with their suppliers to find solutions. However, "if tariffs remain in place, investments under the China + 1 strategy will be in vain," Newman concluded.
Many countries are negotiating import tariffs with the US. Businesses are therefore waiting before changing their production plans. The Trump administration has stated that one of the goals of import tariffs is to bring a large amount of manufacturing back to the US. However, this is a costly and time-consuming process, especially for high-tech industries.
In addition, depending on the industry, a business's supply chain has different constraints, from input materials, infrastructure, quality and labor costs to policies of the host country.
For example, Foxconn - Apple's assembly partner - took years to get its factories in India up and running. And these facilities often have problems. “Investing in building a factory is not an easy or quick thing to reverse. Moving a factory to a new location takes years,” concluded Arthur Dong, professor of strategy and economics at Georgetown University.