China and Manufacturing Tariffs — How They Are Affecting Manufacturers

If you’re a manufacturer, you’re surely thinking about China and manufacturing tariffs. China’s decision to have their own tariffs on American goods after the Trump administration imposed three rounds of tariffs on over $250 billion worth of Chinese goods is affecting manufacturers in Illinois and throughout the U.S.

Tariffs not only increase the prices for consumers; they also kill jobs. There’s a lot of speculation and talk around the labor market, and financial experts say these tariffs could affect both Illinois exports and the jobs in those industries.

Let’s dive deeper to understand how the trade war has impacted manufacturers.

A Look at China and Manufacturing Tariffs

According to a report by the Association of Equipment Manufacturers (AEM), tariffs will have a significant, long-term impact on the U.S. economy. The overall economy will suffer, with an average lost GDP of $29 billion a year for 10 years. Domestic job gains will fall by 260,000 over 10 years. Consumers will pay higher prices and reduce their real spending by $23 billion per year through 2027. Tariffs will also increase the costs of producing U.S. agriculture and construction equipment by six percent and mining equipment by seven percent. The diminished output of all off-highway equipment will lead to a loss of over 20,000 jobs.

How Illinois is Affected

According to the U.S. Chamber of Commerce, 1.7 million Illinois jobs are connected to foreign trade, and over $3 billion worth of Illinois exports are threatened by China and manufacturing tariffs — $1.3 billion in soybeans, $445 million in vehicles, $156 million in bread, pastries, and cakes, $128 million in herbicides, and $88 million in aluminum.

Not only that, some of Chicago’s biggest companies could suffer. A Chinese tariff on airplanes will hurt Boeing and tariffs on construction machinery will hit Caterpillar hard. Regardless of size, these tariffs will hurt all manufacturers now, and potentially into the future.

What Manufacturers Are Doing

While tariffs aren’t yet driving manufacturers to return production to the U.S., they are causing them to move supply chains away from China. Whether they are looking to get materials from a different region or redirecting investments out of China, many manufacturers are severing their long-term supplier relationships rather than trying to absorb the tariffs or find ways to share the costs with suppliers and customers.

Unfortunately, manufacturers haven’t had much luck finding alternative sources of supply to avoid tariffs on Chinese goods, or persuading exporters whose goods have been hit with tariffs to cut prices.

What About Manufacturing’s Rebound?

Over 500,000 new manufacturing jobs have been added, but according to analysts at A.T. Kearney, Trump’s trade policies have actually hurt U.S. manufacturing. The tariffs were supposed to bring jobs back to America, but the higher costs caused by tariffs have not outweighed the benefits of manufacturing in lower-cost countries. Also, tariffs have encouraged some manufacturers to move production to India, Vietnam, and Mexico to avoid tariffs. If tariffs continue to increase costs for manufacturers, they may force those companies to move supply chains to other lower-cost countries in Asia.