In an era of shifting global economic policies, the impact of tariffs on international trade and supply chains is becoming increasingly profound. A recent development highlights the significant adjustments businesses are forced to make in response to these policies, with a particular focus on the effects of US tariffs on global supply chains.
The impending expiration of a 90-day pause on former President Donald Trump’s broad tariffs plan is poised to reshape US trading relationships. This period of uncertainty has already compelled numerous companies to fundamentally re-evaluate and reconfigure their supply lines.
One such company is Learning Resources, an Illinois-based toymaker. The CEO, Rick Woldenberg, expressed his strong opposition to Trump’s tariff policies, which directly impact his business due to the majority of his products being manufactured in China. The tariffs, levied on US importers, have dramatically increased his operational costs. Woldenberg reported a staggering leap in his annual import taxes, from approximately $2.5 million to over $100 million, following a temporary increase in tariffs to 145%. He described this situation as potentially “devastating” for his company.
Even with the current US tariffs on Chinese imports at 30%, the financial burden remains unsustainable for many American businesses like Learning Resources. In response, the company is actively diversifying its supply chain, relocating production from China to Vietnam and India. These countries, unlike China, face significantly lower US tariffs, generally around 10%. However, the broader uncertainty surrounding potential future tariff adjustments by the US government persists, even as these 10% tariffs are set to expire.
The ripple effects of these trade policies extend to other nations as well. Canadian companies, heavily involved in trade with both Canada and the US, are experiencing a dual impact. They face 25% tariffs imposed by the US on numerous Canadian imports, and reciprocal tariffs of the same level from Canada on various American exports. This trade friction is also causing businesses globally to reconsider exporting to the US, as American import partners are forced to raise prices to offset tariff costs, making their products less competitive in the US market.
Learning Resources has already moved approximately 16% of its manufacturing to Vietnam and India. Woldenberg detailed the rigorous process involved, including vetting new factories, training personnel, ensuring smooth logistical flow, and establishing new business relationships. Despite these efforts, he acknowledges the inherent uncertainties, particularly regarding the capacity of these new partners to handle their business volume, especially if other companies make similar shifts.
The financial implications of re-establishing production in new countries are substantial. Concurrently, Learning Resources is pursuing a legal challenge against the US tariffs, a case titled “Learning Resources et al v Donald Trump et al.” While a US District Court judge initially ruled the tariffs unlawful, the US government’s appeal means the company must continue paying them for the time being. This ongoing situation reinforces their decision to move production away from China.
According to global supply chain expert Les Brand, CEO of Supply Chain Logistics, transitioning manufacturing to different countries is both costly and complex. He emphasized the extensive research, quality testing, and time investment required to implement these changes successfully, noting that such efforts divert focus from core business operations. Brand also highlighted the significant expenditure and time involved in knowledge transfer and training new workforces, which can further erode already thin profit margins for many businesses.
The Canadian fried chicken chain, Cluck Clucks, has also felt the impact of tariffs, particularly Canada’s retaliatory measures on US imports. While their chicken is sourced domestically, the company imports essential catering fridges and pressure fryers from the US. Although unable to forgo the fridges, Cluck Clucks has halted purchases of US-made pressure fryers. As no Canadian manufacturers produce alternatives, the chain is compelled to limit its menus at new store locations, offering only boneless chicken dishes, which require different cooking methods than bone-in pieces.
Raza Hashim, CEO of Cluck Clucks, described the decision to alter their menu as “substantial” but strategically sound. He noted that the company has reserved kitchen space to reintroduce the fryers should the tariff situation be fully resolved. Hashim also warned that the increased cost of US-imported fridges might necessitate price hikes for consumers, a move the company wishes to avoid. Despite these challenges, Cluck Clucks continues with its US expansion, establishing local supply chains for its American operations, including its first US outlet in Houston, Texas.
In Spain, the olive oil producer Oro del Desierto faces similar issues with its US exports. Rafael Alonso Barrau, the firm’s export manager, stated that the current 10% US tariffs on European imports are being passed directly to American consumers. The company is considering reducing the volume of exports to the US if profitability declines and is exploring alternative markets. With sales in 33 other markets and its domestic market, Oro del Desierto believes it can mitigate potential losses from the US.
Les Brand advises that a more gradual implementation of tariffs by the US administration could have lessened the impact on businesses. He suggests that the speed and intensity of these policy decisions have exacerbated the problem. Woldenberg echoes these concerns, emphasizing the need for businesses to make informed decisions based on available information and adapt to the evolving trade landscape, stating, “I don’t want to say ‘hope for the best’, because I don’t believe that hope is a strategy.”