Harm or help? Why companies are battling tariffs meant to benefit them

Time of India

2 days ago

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Dan Digre's family business has been manufacturing speakers in Minnesota for 75 years, clinging on even as his U.S. competitors shut their factories and relocated to Asia.The company is the kind of American manufacturer that President Donald Trump says his trade policies will protect. But since Trump began imposing tariffs on Chinese exports in 2018 in an effort to help U.S. manufacturers, Digre's company, MISCO, has been forced to offshore some of its manufacturing. Tariffs have pushed up the cost of the foreign parts he needs for his U.S. factory, making it more economical to produce his speakers elsewhere.Digre's situation illustrates one of the perils of the president's sweeping tariffs, which are intended to raise the cost of foreign goods and encourage consumers to buy domestically instead. For some companies, the tariffs are giving them a chance to compete with cheap imports, particularly from China But for other manufacturers that do business globally, like MISCO, the tariffs are having the opposite effect. Stiff levies are cutting companies off from supplies and markets they depend on abroad, in ways that could undercut Trump's goals, hurt small manufacturers and weigh on the American economy.Digre's company has long manufactured speakers in Minnesota for export, including to a major customer in Canada. His firm relies on certain materials from China, the only place to get many small components needed for speakers. But Digre must now pay a 55% tariff on those Chinese imports. As a result, manufacturing for that customer from the United States no longer makes sense. So Digre has shifted speaker production to a factory in China, where he will export directly to Canada and bypass the United States entirely."We're starting off with a 55% material cost disadvantage to our global competitors," he said. Illogically, he said, the United States charges higher tariffs on speaker parts from China than finished speakers from either China or Vietnam, which also discourages U.S. manufacturing."Making things here and exporting them isn't really feasible as long as these tariffs are in place," he added.This situation stems from the administration's broad-brush approach to tariffs. Trump has applied levies to bananas, bolts, T-shirts and robots, seemingly without regard to whether those industries can or will relocate to the United States. The president has applied tariffs to finished products as well as the parts and raw materials that U.S. factories need, including 50% tariffs on steel and aluminum.So far, Trump's tariffs seem to be benefiting companies that can thrive on serving American customers, particularly those that face tougher competition from China. But for firms that depend on global supply chains and markets, the tariffs the administration is imposing or threatening can be more of a harm than a help.This includes some of the United States' biggest export industries, like the aviation sector, which has been arguing against tariffs on aircraft and parts. It also includes industries the United States has been trying to build up, like semiconductor manufacturing. As the Trump administration considers new chip tariffs in the coming weeks, semiconductor companies have warned that a 25% charge on the machines they need to make chips, which can cost tens or hundreds of millions of dollars each, would make manufacturing in the United States unviable."It isn't as simple as, you put on a tariff, you incentivize stuff to be made here," Digre said. "It's got to be more strategic."Trump's trade policy is aimed at reversing trends that many in the United States now see as harmful, in which companies moved factories overseas in past decades in search of cheaper labor.At a manufacturing conference last month, Jamieson Greer, the U.S. trade representative, said that offshoring had stripped Americans of family-supporting jobs, and the country of an important source of national security and innovation. It had also created the largest trade deficit "of any country in human history on planet Earth," "a state of affairs that is as unsustainable as is unacceptable," he said.Some economists who support the goal of shoring up U.S. manufacturing are skeptical about the administration's approach given it doesn't distinguish between lower-value goods, like shoes and electronic components, and higher-value ones. Many say the cheaper goods are not economical to make in the United States, as opposed to products like airplanes and medical devices that require the advanced manufacturing in which U.S. companies continue to excel."If you were really serious about bringing manufacturing back into the U.S., you'd be doing much more targeted industrial policy," said Dani Rodrik, a Harvard University economist, "versus these across-the-board tariffs, which are an extremely blunt instrument."Brad Setser, an economist at the Council on Foreign Relations, agreed that the administration had chosen to place significant tariffs on a lot of goods without much U.S. production, or the prospect for it to return. "There is a pretty hefty 'Walmart tariff,' you'd say," he said.Setser also said the administration's decision to put large tariffs on the materials factories need, including steel, would backfire. U.S. steel is already significantly more expensive than elsewhere in the world.The Trump administration has not offered any exclusions to its tariffs out of concern that the process would undercut its effectiveness and reduce the revenue the president wants to collect. But Setser said the impact would be to make manufactured goods more expensive, which ultimately reduces demand for them."The price goes up, and people economize," he said. "There are just a series of design decisions that are going to complicate any real expansion in manufacturing."While it is likely too early to judge, there is little sign so far that tariffs are bolstering U.S. manufacturing in any significant way.Some Trump supporters have pointed to a slight uptick in industrial production this year, as well as growing capital expenditures, which suggests companies are continuing to spend on plants and equipment.But a monthly survey of manufacturing executives has indicated that the factory sector was in a contraction in recent months, as it has been for much of the past three years. And the United States has shed manufacturing jobs in recent months, even as jobs in other sectors, like health care, have risen. Data released Friday showed that the United States lost 11,000 manufacturing jobs in June, a fairly significant decrease that comes on top of 6,000 job losses the previous month.Government data also shows that company spending on new factories has slumped, despite the Trump administration's frequent announcements of large investment commitments. Spending on factory construction had surged in 2024 as the Biden administration subsidized the semiconductor and clean energy industries, efforts that the Trump administration has criticized or abandoned.Diane Swonk, the chief economist at KPMG , said that the bulk of the effects of tariffs was still ahead, but that economic literature suggested they were likely to be an impediment to manufacturing."It's too soon to declare it one way or the other, but we're already seeing the headwinds mount," she said.Kush Desai, a White House spokesperson, said in a statement that the tariffs had helped secure trade deals providing "unprecedented market access for American exports.""As the American economy continues roaring back thanks to the administration's economic agenda of deregulation and the One Big Beautiful Bill's tax cuts, American companies are set for historic growth at home and abroad," he added.Some manufacturers say tariffs are an important tool to help them compete against unfairly low-priced imports and to preserve manufacturing that could be vital for national security.Charlotte Pipe, a 124-year-old, fifth-generation, family-owned business in North Carolina, does the kind of manufacturing that may make sense for the United States to protect.The company makes pipe, fittings and manhole covers out of cast iron and plastic, and employs around 2,000 people around the U.S. But Brad Muller, the company's vice president of marketing and government affairs, argues that foundries like Charlotte Pipe can be converted in wartime to produce anything made of melted metal, including tanks or ships. And once foundries close, "they don't really come back," he said, without an investment of hundreds of millions of dollars.Muller said that he supported tariffs for his industry, but he acknowledged that they weren't the solution for all sectors."Tariffs are a blunt tool," he said. "But at the same time we feel like some industries need protection, so we have these industries and we can make things in America."For some critical types of manufacturing, the threat from foreign competition is not dissipating. In particular, the Chinese government continues to pour money into its factories, boosting exports and reducing the global price of goods like solar panels and critical minerals to a level where it makes little economic sense for other countries to try to compete.In recent months, Beijing has flexed its control over rare earth minerals and magnets needed by U.S. manufacturers, reinforcing for U.S. policymakers the risks of depending on a potential adversary for key materials.Neil Shearing, the chief economist at Capital Economics, said China's factories "are in overdrive as a structurally imbalanced economy pushes a flood of ever-cheaper goods into the global economy.""Tariffs are a blunt response, but they reflect a deeper shift: the world is increasingly unwilling to absorb the consequences of China's investment-heavy model," he added.But some companies that import goods from China that are of little strategic importance to the United States have been bewildered by the Trump administration's sweeping approach, saying their businesses are a casualty.Mac Harman, the CEO of Balsam Hill, which sells artificial Christmas trees and Christmas tree decorations, said his company had been stuck with tariff bills on some of its shipments ranging into the tens of millions of dollars, as U.S. tariffs on imports from China climbed this year.The company has trimmed its workforce, frozen wages, investments and travel, and even stopped supplying office lunches. Balsam Hill sources most of its products from abroad, but buys some figurines and other products from artisans in the United States, and employs 170 people in the U.S. in sales, distribution and other activities."It means we've stopped growing our business," Harman said. "That's the reality of what we have to do to pay for the tariffs."(STORY CAN END HERE. OPTIONAL MATERIAL FOLLOWS.)Harman said his products were not things that American workers wanted to manufacture. For example, prelighted Christmas trees, a major product for the company, have "never been made in the United States," he said."It's just super painstaking," he said. "That's why our product category exists, because people don't want to put lights on a tree."David Autor, an economist at the Massachusetts Institute of Technology, who has highlighted the threat that Chinese competition is posing to industries like cars, robotics, semiconductors, aviation, biotechnology and solar power, said that preserving those important industries would "require a much more thoughtful set of policies than simply slapping tariffs on friends and foes alike.""I think there is a role and a place and a time for tariffs in industrial and trade policy, and I think the time is now," Autor said. "But the alternative to doing nothing isn't any random thing you can think of."