Business experts at Iowa State University see challenging times ahead for U.S. manufacturers and suppliers, as well as higher costs for consumers, due to the trade war between the United States and China.
Scott Grawe, associate professor of supply chain management at the university’s Ivy College of Business, doesn’t see newly imposed tariffs on Chinese goods leading to more profits for U.S. and Iowa companies. That’s because supply chain managers have other cost-effective options in the international economy, according to Grawe.
“Companies buy from other countries because the cost of labor is lower than in the U.S.,” Grawe said in a prepared statement. “While there may be opportunities to source locally, supply chain managers will scan the globe to get products in the most cost-effective way.”
In addition, Chinese companies may still be the best option for some U.S. firms due to the low labor costs there, he said.
Associate professor Haozhe Chen said many smaller U.S. businesses operate on tight margins of 5 percent or less and can’t absorb tariff costs, meaning that these costs are passed along to consumers.
Dollar Tree and Dollar General have both announced price hikes in recent weeks, with more retailers expected to follow suit, according to Chen.
“The tariffs go both ways,” she said in a statement. “In response to the Chinese government raising tariffs on U.S. imports, Chinese businesses may look for non-U.S. suppliers because of the increased costs to buy raw materials and products from the U.S. Chinese consumers also may rethink buying U.S. brands that have a presence in China.”
Mike Crum, another expert on supply chain management at the Ivy College of Business, said that one possible positive effect of the tariffs may be that U.S. companies will look to trade more with nations where the U.S. has stable relations and a more equal balance of trade. This could strengthen North American trade patterns, Crum said.
“As you start thinking about political stability around the world as well as energy consumption and efforts to be green, bringing more trade and manufacturing back to this continent makes a lot of sense,” he said.
And associate professor Bobby Martens noted that the tariffs are placing new demands on U.S. transportation systems as trade patterns begin to shift. Martens cited how Midwest farmers are shipping more soybeans to South America rather than to China, leading to increased freight flowing on the Mississippi River, which faces new challenges due to spring flooding in the region.
“Many companies are feeling a great deal of pain because flooding is limiting, even stopping, use of the Mississippi River system,” he said. “More than that, demand for using the Mississippi is greater than it’s been for many years because of the tariffs with China.”