EDCUtah recently tuned in to a webinar hosted by the Reshoring Institute, a non-profit dedicated to reshoring manufacturing back to the United States. The Institute interviewed 18 executives across a wide range of industries on recent changes to tariffs. The webinar covered a lot of ground, so this recap focuses on what corporate executives are doing to manage volatile situations.

Rosemary Coates, executive director of the Reshoring Institute, led the discussion. She started with an historical perspective on tariffs, then outlined the goals and aspects of the recent moves by the Trump administration. Some takeaways include:

• “We’re moving away from sole sourcing to give us more options.” According to Coates, this quote from one executive was a common theme throughout all the discussions they had in the study. Domestic sourcing is likely to grow over the next few years, Coates observes, though she cautions that redeveloping a domestic supply base can take as much as 18 months to put into effect. She notes that two-thirds of the respondents are seeking to increase domestic supply chains.

• “Our capital investments are frozen because we don’t know what to expect.” Uncertainties are causing companies to slow or stop major expenditures. Coates said that there is a similar chilling effect on hiring, at least until “outlooks and tariff rates are stabilized.” This finding was another point of consistency in all the conversations.

• Respondents indicated that, especially in the electronics sector, which imports components from China, uncertainty and geopolitics are causing disruptions. The elimination of de minimus shipments (value less than $800) is also creating an increased workload and delays for U.S. Customs.

• Companies would like to manufacture in the United States, but the economics are challenging. Investments in automation would be a significant part of this approach.

• “We are asking our Chinese suppliers to give us a discount – at least 50 percent of the tariffs.” At the same time, suppliers are asking U.S. clients to absorb more freight charges. In general, companies recognize they will have to increase prices to customers, and are asking suppliers to share the load. In addition, most companies are working with forwarders and brokers to review import classifications, potential duty drawbacks, and using foreign trade zones to delay or reduce costs.

• Companies can also look at U.S. Customs strategies, such as the First Sale Rule, to lower costs. For example, a Chinese manufacturer may sell to a Hong Kong trading company, which then sells to a U.S. importer at a marked-up price. The duty can then be calculated on the lower first sale price rather than the final U.S. sale price. There are provisions that must be followed to utilize this technique; companies are urged to work with their brokers to manage the details.

• Lastly, as of this writing, there are trade partners with lower tariffs to consider. Goods covered by the US-Mexico-Canada Agreement (USMCA) are duty-free. India, Indonesia, the Philippines, Taiwan, South Korea, Vietnam, Thailand and Malaysia have relatively low tariffs at this point.  

Going forward? In Coates’ words, a number of the companies are “stuck, not knowing what to do.” Others are modeling various alternative strategies and “what-if” approaches, using cross-functional teams. This involves an analysis of geopolitical risks (particularly with China and Taiwan), as well as consideration of moving manufacturing to alternative low-cost countries such as Vietnam, India and Mexico. Coates also notes that companies can work with economic development partners to facilitate managing tariff changes and reshoring.

In Utah in particular, EDCUtah investors are encouraged to work with the Salt Lake City Department of Economic Development and the World Trade Center Utah on foreign trade zone matters, and with the Manufacturing Extension Partnership on supply chain development and manufacturing best practices. EDCUtah will continue to engage with companies looking to reshore or diversify operations, and with foreign companies looking to find a manufacturing “landing zone” in the United States.

You can view the entire presentation here. For more information on the Reshoring Institute, visit their website.