Tariffs: Their Unintended Consequences, and How to Respond

Uncertainty is the enemy of efficient, low-cost manufacturing. That lesson has been driven home by the geopolitical whipsawing of the last few years. Whether due to pile-ups of containers at ports due to strikes, diversion of trade routes to avoid hot conflict zones, or any of the other monkey wrenches, we’ve seen a new degree of unpredictability thrown into carefully designed global supply chains.

Some of it is unavoidable, like natural disasters, but some is the direct result of actions taken in the name of driving economic vitality and security of strategic industries.

Over the past week, the Trump administration announced a sweeping range of new tariffs of 25% on imports from Mexico and Canada, and an increase of 10% in tariffs already in place on China. Trump then suddenly announced a month-long pause on the Mexico and Canada tariff measures — and by the time you read this article, the situation will likely be entirely different again.

These dramatic and sudden shifts create inefficiencies even if they never to go into effect, simply because companies need to take risk-mitigation actions, such as buying extra products and material, or negotiating with alternative suppliers of goods.

Tariffs can be a powerful and effective tool for a large economy. Since the implementation of tariffs on China in 2017, we’ve seen a dramatic shift in trade patterns, with China shrinking from acc…