The Trouble With Tariffs - Katalyst Technologies

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The Trouble With Tariffs
https//katalysttech.com/
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In our series of supply chain predictions for
2020, we explored how an unpredictable global
economy will present challenges to manufacturers.
In the weeks since that piece was published, the
United States and China teamed up to sign a
Phase One deal set to take effect on February
14. The tariff on Chinese products remains intact
for now, with China pledging to buy 200 billion
of U.S. goods and services in the next two years,
although the terms may be renegotiated in a
future deal. Leaders of both countries seem
pleased with the pact, although economic analysts
are less impressed. One diplomatically considers
it a start, while another called the deal not
encouraging as a completely sustainable trade
framework going forward. Were sort of
chaotic at the moment, says Rosemary Coates,
Executive Director of Reshoring Institute. My
guess is the deal is not going to mean much,
and well barely have a dent in the trade war.
The trade war is going to continue for a while.
If your companys supply chain has any
international presence, reach out to Katalyst to
determine ifand howyou should modify your
practices. Read on for more on how tariffs have
impacted business practices and governmental
relations in the past, and what tech companies
should do to minimize concerns and costs.
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History of American Tariffs  Its a common
misconception that taxes are despised. Taxes
are actually quite popularwhen other people are
paying them. Indeed, tariffs were a well-received
mainstay of the early American economy, promoting
domestic manufacturing and agriculture and, accord
ing to some sources, funding as much as 95 of
the federal government. The country took it a
step too far, however, when it passed the
1930 Smoot-Hawley Tariff Act. The law increased
an already high average dutiable tariff rate
by approximately 20, and American imports and
exports fell significantly. Economists had warned
President Herbert Hoover not to pass the tax,
which they rightly predicted would amplify and
extend the Great Depression.  After World War
II, the United States actively reduced its
reliance on tariffs, pushing for free trade
agreements, and helping to establish the World
Trade Organization. More recently,
though, tariffs have emerged once againthough
the China situation is the most widely
reported, there have also been significant taxes
on European and Canadian imports, with
more likely soon.  Tariffs and Tech
Companies  Because China is so heralded for
its high-quality yet inexpensive electronics,
software and technology companies are on high
alert. The increased rates on laptops, phones,
TVs, and other products have resulted in billions
of costs to businesses and consumers. Several tech
companies have formally petitioned the U.S.
government to limit the tariffs or provide
exemptions, including Apple, Microsoft,
and Nintendo. Even cloud-based/SaaS providers
are taking a hitwhile they have fewer hardware
expenses to consider, components still
originate from China, and data storage on that
level is not cheap.  When it comes
to punitive tariffs, businesses and consumers
simultaneously feel the most pressure and hold
the most power costs are ultimately passed down
to them, but if they find themselves satisfied
with substitutions, it eventually loosens any
intended strangleholds towards another
government. 
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In the wake of the trade war with China, many of
these tech companies began exploring alternatives 
in their supply chains, bringing manufacturing to
territories such as Vietnam and Thailand. While
this avoids the overwhelming tariff, it comes
with the caveat of a smaller, less skilled
workforce. Plus, China remains a growing and
profitable market.   If you dont keep your eye
on China as a developing market, youre going to
miss a lot of revenue, Coates warns. Its a
huge growing market. So Whats Next? The
short answer nobody really knows. While the
Phase One deal does not appear to have relieved
concerns from economists and supply chain
managers, it is at least regarded as a step in
the right direction. Perhaps the most important
lesson and development is the incentive to look
outside of China for supply chain essentials.
I think were going to continue to see shifts
in companies moving production to other areas,
which is not a bad strategy, says Coates. It
certainly mitigates risk, instead of having all
your eggs in one manufacturing basket. In turn,
this will inspire other countries to revamp and
improve practices. There may be no real end to
the trade war in sight, but companies who can
find opportunities within this challenge will
give themselves more options and paths to succeed
in the future. Source Link - https//katalysttec
h.com/blog/the-trouble-with-tariffs/
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